Gitman and kanwal s sachdeva in a framework for

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Unformatted text preview: roach,” The Financial Review (1974), pp. 79–88, and refined and operationalized by Lawrence J. Gitman and Kanwal S. Sachdeva in “A Framework for Estimating and Analyzing the Required Working Capital Investment,” Review of Business and Economic Research (Spring 1982), pp 35–44. 602 PART 5 Short-Term Financial Decisions FIGURE 14.1 Time Line for MAX Company’s Cash Conversion Cycle MAX Company’s operating cycle is 100 days, and its cash conversion cycle is 65 days Time = 0 100 days Operating Cycle (OC) Purchase Raw Materials on Account Collect Accounts Receivable Sell Finished Goods on Account Average Age of Inventory (AAI) Average Collection Period (ACP) 60 days 40 days Average Payment Period (APP) Pay Accounts Payable Cash Inflow Cash Conversion Cycle (CCC) 65 days 35 days Cash Outflow Time The resources MAX has invested in this cash conversion cycle (assuming a 360-day year) are Inventory Accounts receivable Accounts payable ($10,000,000 0.75) (60/360) ( 10,000,000 40/360) ( 10,000,000 0.75 0.65) (35/360) Resources invested $1,250,000 1,111,111 473,958 $1,...
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This document was uploaded on 01/19/2014.

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