For example if max could reduce the average

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Unformatted text preview: 887,153 Changes in any of the time periods will change the resources tied up in operations. For example, if MAX could reduce the average collection period on its accounts receivable by 5 days, it would shorten the cash conversion time line and thus reduce the amount of resources MAX has invested in operations. For MAX, a 5-day reduction in the average collection period would reduce the resources invested in the cash conversion cycle by $138,889 [$10,000,000 (5/360)]. Funding Requirements of the Cash Conversion Cycle We can use the cash conversion cycle as a basis for discussing how the firm funds its required investment in operating assets. We first differentiate between permanent and seasonal funding needs and then describe aggressive and conservative seasonal funding strategies. Permanent versus Seasonal Funding Needs permanent funding requirement A constant investment in operating assets resulting from constant sales over time. If the firm’s sales are constant, then its investment in operating a...
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This document was uploaded on 01/19/2014.

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