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1. Explain the connection between a firm’s accounting-based profitability and its cash cycle?

2. Describe the operating cycle and the cash cycle. What are the differences?

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Lelia Lubowitz
Lelia LubowitzLv2
28 Sep 2019

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The Greek Connection had sales of $32 million in 2009, and a cost of goods sold of $20 million. A simplified balance sheet for the firm appears below:
THE GREEK CONNECTION
Balance Sheet
As of December 31, 2009
(000)
Assets Liabilities and Equity
Cash $2,000 Accounts payable $1,500
Accounts receivable 3,950 Notes payable 1,000
Inventory 1,300 Accruals 1,220
Total current assets $7,250 Total current liabilities $3,720
Net plant, property Long-term debt $3,000
and equipment $8,500 Total liabilities $6,720
Total Assets $15,750 Common equity 9,030
Total liabilities and equity $15,750
a. Calculate The Greek Connection’s net working capital in 2009.
b. Calculate the cash conversion cycle of The Greek Connection in 2009.
c. The industry average days sales outstanding ratio is 30 days. What would the cash conversion cycle for The Greek Connection have been in 2009 had it matched the industry average days sales outstanding?
Sales (000) $32,000 Days in a year 365
Cost of Goods Sold (000) $20,000
a. Calculate The Greek Connection’s net working capital in 2009.
Net working capital (000)
b. Calculate the cash conversion cycle of The Greek Connection in 2009.
Accounts receivable days
Inventory days
Accounts payable days
Cash conversion cycle (days)
c. The industry average days sales outstanding ratio is 30 days. What would the cash conversion cycle for The Greek Connection have been in 2009 had it matched the industry average days sales outstanding?
Industry accounts receivable days 30
Cash conversion cycle (days)

a. What is the difference between a​ firm's cash cycle and its operating​ cycle? Select all that apply

A firm's cash cycle is the average length of time from when a firm pays cash for its inventory to when it receives cash from the sale of that inventory? (or the end product that the firm produced with the? inventory).

B. If a firm were to pay cash for its? inventory, rather than buying the inventory on? credit, the cash cycle and the operating cycle of the firm would be identical. In most? cases, however, firms buy their inventory on? credit, so the cash cycle is longer than the operating cycle of the firm.

C. firm's operating cycle is calculated as the average number of days between the purchase of the initial inventory and the sale of the end product plus the average number of days it takes the? firm's customers to pay for the inventory they purchase.

D. A firm's operating cycle is the average length of time between when a firm purchases its inventory and when the firm receives cash from the sale of the inventory. E. The cash cycle is calculated as the average number of days between the purchase of the initial inventory and the sale of the end product plus the average number of days it takes the? firm's customers to pay cash for the inventory they purchase minus the average number of days the firm takes to pay its suppliers for the inventory. F. If a firm were to pay cash for its? inventory, rather than buying the inventory on? credit, the cash cycle and the operating cycle of the firm would be identical. In most? cases, however, firms buy their inventory on? credit, so the cash cycle is shorter than the operating cycle of the firm.

Stewart and Company currently has a production cycle of 40 days, a collection cycle of 20 days and a payment cycle of 15 days. What are Stewart's current business operating cycle and cash conversion cycle? If Steward and Company wants to reduce its cash conversion cycle to 35 days, what action can it take?

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