MA2-49 - MA2-49 Financial analysts, potential investors and...

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MA2-49 Financial analysts, potential investors and parties interested in a company’s financial situation pay special attention to its net working capital. A company with a positive net working capital (more current assets than current liabilities) can be identified as being liquid, which means that it has sufficient funds to take care of the short terms debts within the year (Easton, Halsey, McAnally,Hartgraves & Morse, 2010). It should be noted that current assets and current liabilities are not always incurred at the same time. Easton et al., defines the operating cycle as the time frame between paying cash for goods and receiving cash from customers. During the operating cycle cash is spent on inventory which remains in the company until sold. Once the inventory is sold there is usually a 30 to 90 days wait period for cash to be received as payment for the sales. This cycle determines how much net working capital a company needs to operate. With that in mind it is understandable that a company would like to reduce its cash conversion
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This note was uploaded on 04/06/2012 for the course FINANCE 410 taught by Professor N/a during the Spring '09 term at AIU Online.

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MA2-49 - MA2-49 Financial analysts, potential investors and...

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