Cash and Cash Conversion Cycle Exercises
Complete these exercises. Pay attention to the conceptual questions.
Exercises 1
- Why does a company need a financial plan?
- In what ways is a corporate financial plan similar to a personal financial plan? Do you have a personal financial plan? If not, do you have plans to create one?
Exercises 2
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Classify the following cash flows as a cash inflow or cash outflow.
Sales
Electric Supplier invoice
mortgage
payment from biggest customer
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Create an internal cash budget based on the following information:
Sales = $50,000
Rent = $20,000
Depreciation = $7,500
Accounts Receivable = $20,000
Accounts Payable = $15,000
Exercises 3
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Determine the net working capital funding needs, given the following:
Cash = $15,000
Inventory = $30,000
A/R = $20,000
A/P = $25,000
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Determine the seasonal funding needs, given the permanent NWC funding in problem 1 and the following peak needs:
Cash = $15,000
Inventory = $55,000
A/R = $45,000
A/P = $25,000
- How might an aggressive strategy backfire? How might a conservative strategy backfire? When is it best to use each type of strategy?
Exercises 4
- Your company has a 90 day collection policy for receivables. A customer is having a cash flow issue, and asks for more lenient payment terms. What are some of the ethical considerations for this scenario?
Exercises 5
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Calculate Inventory Conversion Period, Receivables Conversion Period, the Payment Conversion Period and the Operating Cycle for Persistence Inc. given the following information. Use 365 to get average:
Inventory = 150
COGS = 2200
A/R = 80
Revenues = 1460
Purchases = 2555
A/P = 100
- Calculate the Cash Conversion Cycle for the above data from Persistence Inc. and graph on a timeline.
- Can a Cash Conversion Cycle be negative? Why or why not? What does this mean?
Source: Saylor Academy, https://2012books.lardbucket.org/books/finance-for-managers/s17-cash-and-cash-conversion-cycle.html
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