BUSI 2503 Chapter Notes -Accounts Payable, Capital Structure, Capital Budgeting
28 Dec 2014
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Liquidity - the ability to convert an asset to cash quickly as the need arises. Liquidity is largely determined by cash flowing the company on a daily, weekly, and monthly basis as determined by the cash flow cycle. I. e. sales produce accounts receivable that are collected as cash in the future and in turn used for inventory. This process repeats, but because cash flow may be unpredictable and uneven, the firm will experience asset build up and growth. Cash flow relies on: effort and success of sales team, speed of the treasury functions (i. e. collecting, processing, transferring funds), and the efficiency of the production process. Primary thought in managing cash flow cycle is to make sure inflows are properly synchronized with outflows. Cash conversion cycle - time elapsed from initial outlay of funds for raw materials, until the firm collects for the finished product. Plus the time it takes to collect sales from clients.
