Adong's Fishing Products Is Analyzing the Performance of Its Cash

question 240

Essay

Adong's Fishing Products is analyzing the performance of its cash management. On average, the firm holds inventory for 65 days, pays its suppliers in 35 days, and collects its receivables in 15 days. The firm has a current annual outlay of $1,960,000 on operating cycle investments. Adong currently pays 10 percent for its financing. (Assume a 360-day year.)
(a) Calculate the firm's cash conversion cycle.
(b) Calculate the firm's operating cycle.
(c) Calculate the daily expenditure and the firm's annual savings if the operating cycle is reduced by 15 days.

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Definitions:

Balance Sheet

A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time, showing the company's financial condition.

Current Ratio

Current ratio is a financial metric used to evaluate a company's ability to pay off its short-term liabilities with its short-term assets.

Quick Ratio

A measure of a company's ability to meet its short-term obligations using its most liquid assets, calculated as (Current Assets - Inventory) / Current Liabilities.

Credit Risk

The risk of loss due to a borrower's failure to make payments on any type of debt.