Learning Journal LJ-wk24404 PDF

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Summary

Please write at least three well composed paragraphs that explain the cash realization cycle. What role does inventory turnover and receivable collection play in the realization of cash for a business?...

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Unit two is devoted to the theme of ‘Estimating Cash Flows’ and we looked at topics such as inventory and receivable turnover calculations, which are measured in rates and days. The cash realization cycle was then identified in conjunction with other forecast models. The uses of current and quick-ratio models of assessment, as well as the time value of money, were investigated. The texts provided sufficiently aid us in assimilating these concepts in the best way possible. We expect to use these concepts and many more in this learning journal to express our opinions using the guided instructions provided below. Please write at least three well composed paragraphs that explain the cash realization cycle. What role does inventory turnover and receivable collection play in the realization of cash for a business? The Cash realization cycle (CRC) (also known as the Cash Conversion Cycle CC) or Cash Cycle (Tualia.com, para 1) or net operating cycle (Hayes & James, 2021 Para) is a working capital metric that expresses how long it takes a company to convert cash into inventory and then back into cash through the sales process. The less time cash is held in accounts receivable and inventory, the shorter a company's CCC (CFI, n.d para1). According to Morrow (2012, p3), CRC involves three aspects, including Days of Inventory Outstanding-DIO, Days of Sales Outstanding-DSO and Days of Payable Outstanding-DPO. CCC can be computed as DIO plus DSO less DPO or CCC = DIO + DSO – DPO. The role of inventory turnover and receivables collection is critical to the CCC in the sense that when inventory turnover is rapid and greater, it reduces the CCC and when it is slow-moving and smaller, the CCC increases. It simply means that it takes a company longer to collect cash from revenues, which can lead to cash flow problems when the company requires working capital (Tarver, 2018 para1). On the other hand, if a business can reduce the number of days of receivables, the better the CCC will be, since it will enable the business to easily invest in other assets (Merritt, n.d, para 14).

References Tualia.com (n.d) what is cash conversion cycle (CCC)? https://taulia.com/glossary/what-is-thecash-conversion-cycle-ccc/ Hayes A & James M(2021)conversion cash cycle-CCC. https://www.investopedia.com/terms/c/cashconversioncycle.asp Corporate Finance Institute-CFI( n.d)cash coversion cycle. https://corporatefinanceinstitute.com/resources/knowledge/accounting/cash-conversion-cycle/ Morrow R(2012)Working capital management: A must for any startup. http://www.texasenterprise.utexas.edu/article/working-capital-management-must-any-startup

Tarver E (2018). How does inventory turnover affect the cash conversion cycle (CCC)? https://www.investopedia.com/ask/answers/031615/how-does-inventory-turnover-affect-cashconversion-cycle-ccc.asp Merritt C(n.d) How Does Accounts Receivable Turnover Affect a Company? https://yourbusiness.azcentral.com/accounts-receivable-turnover-affect-company-21280.html...