Cash and Cash Conversion Cycle Exercises

Complete these exercises. Pay attention to the conceptual questions.

Exercises 1

  1. Why does a company need a financial plan?
  2. 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

  1. Classify the following cash flows as a cash inflow or cash outflow.


    Electric Supplier invoice


    payment from biggest customer

  2. 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

  1. Determine the net working capital funding needs, given the following:

    Cash = $15,000

    Inventory = $30,000

    A/R = $20,000

    A/P = $25,000

  2. 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

  3. How might an aggressive strategy backfire? How might a conservative strategy backfire? When is it best to use each type of strategy?

Exercises 4

  1. 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

  1. 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

  2. Calculate the Cash Conversion Cycle for the above data from Persistence Inc. and graph on a timeline.
  3. Can a Cash Conversion Cycle be negative? Why or why not? What does this mean?

Source: Saylor Academy,
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Last modified: Wednesday, January 5, 2022, 8:48 PM