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How would a reduction in cash conversion cycle increase profitability?
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What are the different between an operating cycle and a cash conversion cycle?
Operating cycle is the period in which company purchase raw material and good manufactured from that raw material while cash cycle is investing cash in inventory to manufacture the goods and selling the goods and earning cash from that sales and after that collecting cash from debtors.
Difference between gross operating cycle and net operating cycle?
Operating CycleAn operating time cycle is the average time period between the acquisition of inventory and the receipt of cash from the inventory's sale. A short operating cycle means a more prompt return on investment for the firm's inventory. During an economic downtown, an operating cycle typically lasts longer than in periods of economic growth. Cash Conversion CycleThe cash conversion cycle is the number of days required for a company to convert resources to cash flows. This measure calculates the time period during which each input dollar is committed to production and sales processes before it is converted to cash through the accounts receivable process. The cash conversion process gives insight into the financial stability of a company because it reflects the time period during which assets are committed to business processes and therefore are not available to invest to achieve even greater returns. As a result, the shorter the cash conversion cycle, the better. Calculating the Operating CycleTo calculate the operating cycle, determine the duration of each element of the operating cycle including raw materials, work-in-process, finished goods and bills receivable. Next, calculate the aggregate duration of the cycle by adding together each of these elements. The greater the operating cycle, the greater the business requirement for working capital. The greater the working-capital requirement, the higher the inventory-carrying cost, including interest payments, and the greater the opportunity cost due to the inability to invest funds in a higher use. In addition, the lower the operating cycle, the greater the number of completed cycles per year, and the greater the annual gross and net profits. Caculating the Cash ConversionThe cash conversion cycle calculation uses elements of the operating cycle equation, including raw materials, work-in-process, finished goods and bills receivable, in addition to the days' payables outstanding. The days' payables outstanding is the average time required by the company to pay its vendors. First, calculate the accounts payable turnover by dividing the cost of goods sold by accounts payable. Next, divide 365 days by the accounts payable turnover to determine the days' payables outstanding. To determine the cash conversion cycle, first add the days' sales outstanding and the days' sales in inventory, and then subtract the days' payables outstanding. The resulting cash conversion cycle measures the time period between the cash outflow for materials required for the production of a product or service and the cash inflow from sales. A decrease in the cash conversion cycle can lead to an increase in the operating profit margin.
What is the cash conversion cycle of a commercial bank?
Receiving deposits from customers, lending the money to clients and then collecting the granted money back in addition to interests and commissions.
How receivables collection period may affect the operating cycle?
Receivables collection period refers to the number it takes debtors to pay which is about the last part of the operating cycle where the company will generate the required cash to start another cycle. the longer it takes the debtors to pay, the longer the operating cycle becomes however short are the other elements such as raw material conversion cycle, work in progress conversion cycle, marketing and distribution cycle for finished goods. since most companies run their account on accrual basis such that it gives rise to selling goods and services on credit, there will be need to have a good collection policy in place so as to avoid tying down capital in the hands of customers and most importantly to shorten the average collection period to have a shorter operating cycle. the shorter the operating cycle, most especially for merchandising, the better the company's efficiency. Lateef Ismail Adebayo Credit and Marketing Union Bank of Nigeria Plc. +2348035571160.
What is the difference between target costing and life cycle costing?
In Target costing system, comapnies tries to achieve target prices by reducing those parts of activity which are not increasing the value of product. Life cycle costing is a concept in which companies tries to read the overall process of development of product life cycle and tries to minimise the cost at area where it is not required or not increase the value of product.
How can effective maintenance improve life cycle profitability?
It can't.
What does NADPH provide in the Calvin benson cycle?
NADPH provides reducing power in the Calvin cycle, enabling the conversion of carbon dioxide into sugars. It is essential for the reduction of 3-phosphoglycerate to glyceraldehyde-3-phosphate, which is a key step in the cycle for the production of carbohydrates.
What does NADPH add to the Calvin-Benson cycle?
NADPH serves as a reducing agent in the Calvin-Benson cycle, providing electrons to drive the conversion of 3-phosphoglycerate into glyceraldehyde-3-phosphate. This reduction step ultimately leads to the production of glucose during photosynthesis.
What is isocitrate dehydrogenase?
Isocitrate dehydrogenase is an enzyme that plays a crucial role in the citric acid cycle, also known as the Krebs cycle. It catalyzes the conversion of isocitrate to alpha-ketoglutarate with the concomitant reduction of NAD+ to NADH. Mutations in isocitrate dehydrogenase have been associated with certain types of cancer.
What are the end products of each step in system development life cycle?
birth - sales increase, growth - high turnover maturity - high profitability decline - efficiency optimized costs, low debt ratio
What is Conversion cycle in accounting system?
erd of online bank
What is an example of an ongoing trend in the evolution of land plants?
reduction of the gametophyte life cycle
When there is a reduction in amplitude over every cycle of vibration then the body is said to?
damped vibration
Which natural cycle does the use of fertilizers increase?
because of its carbon cycle
Which of the following leads to the end of a boom period in the business cycle?
a reduction in consumer demand resulting from inflation
Why bacteria are the most important part of the nitrogen cycle?
The conversion of ammonia to nitrate (nitrification) is performed primarily by soil-living bacteria and other nitrifying bacteria. It is important for the ammonia to be converted to nitrates because accumulated nitrites are toxic to plant life. Denitrification is the reduction of nitrates back into the largely inert nitrogen gas (N2), completing the nitrogen cycle.
What are the major parts in the nitrogen cycle?
The major parts of the nitrogen cycle include nitrogen fixation (conversion of atmospheric nitrogen into forms usable by plants), nitrification (conversion of ammonium into nitrites and nitrates by bacteria), denitrification (conversion of nitrates back into atmospheric nitrogen), and assimilation (incorporation of nitrogen into plant and animal tissues).
