Transcription of WORKING CAPITAL - BEU
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WORKING CAPITAL - BEU
WORKING CAPITALO perating Cycle versus Cash Cycle Operating cycle the time period between theacquisition of inventory and the collection of cycle = Inventory period + A/cs receivable period Cash cycle the time period between the outlay ofcash for purchases and the collection of cash cycle = Operating cycle A/cs payable periodCash Flow Time LineAccounts receivableperiodCashreceivedTimeInventor ysoldInventorypurchasedInventoryperiodTi meAccounts payable periodCash paid for inventoryOperating cycleCash cycleExample Operating CycleItemBeginning EndingInventory$90 000 $102 000 Accounts receivable$72 000$78 000 The following information has been provided for Overcredit Co.
Costs of Investments • Need to manage the trade-off between carrying costs and shortage costs. • Carrying costs increase with the level of investment in current assets, and include the costs of maintaining economic value and opportunity costs . • Shortage costs decrease with increases in the level of investment in current assets, and include trading costs and
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