OR 3150 class notes - class notes

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
ORIE 3150 September 16, 2010 I. Cash Cycle Review A/P Average Sold Goods of Cost Turnover Payables = Inventory Average Sold Goods of Cost Turnover Inventory = Receivables Turnover A/R Average Sales Net = Turnover 365 (days) Age = Cash Used = 365 u n CGS × Cash Supplied = 365 f n Sales × The cash cycle occurs as follows. 1. A merchandiser purchases inventory from a supplier on account, thus the merchandiser incurs an accounts payable at that time. 2. This inventory sits on the shelf in the store for a certain number of days. 3. Then a customer purchases the inventory on account, thus it becomes an account receivable. 4. The merchandiser pays off the accounts payable using cash at some point, this may be before or after he/she receives cash from the customer. If the merchandiser receives cash from before he/she must pay cash to the supplier, the merchandiser can invest this money, use it to build a new store (like Carrefour did), or otherwise use the money for other things. The cash cycle in this case provides cash to the business. This is a favorable cash cycle, and the number of days between receiving the cash from customers and paying it to the supplier is defined as n f . If, conversely, the merchandiser must pay the supplier before he/she receives cash from the customer, the merchandiser must get the cash from some other source. The most common source of cash for this purpose is short term borrowing from a bank. The cash cycle in this case uses cash.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 3

OR 3150 class notes - class notes

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online