BU283 Chapter Notes - Chapter 15: Cash Conversion Cycle, Corporate Finance, Accounts Payable
Document Summary
Suppose you decide to start a small business that sells custom fingernail polish. You order the paints, bottles, and labels from a vendor that requires payment of in. You make up the polish and set up your website to take orders. When orders are received, you mail the polish. On average, it takes 90 days to sell each batch. All sales are by credit card and you receive payment 3 days after the sale. Within the operating period, we can identify two separate periods: the inventory period and the collection period. Inventory period: the time it takes to acquire and sell the inventory: this may include building a product or just holding an item for sae on a shelf. Collection period: the time from the sale of the product until funds are actually received from the buyer. Operating period = inventory period + collection period.
