Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › regarding cash operating cycle
- This topic has 8 replies, 2 voices, and was last updated 9 months ago by John Moffat.
- June 21, 2022 at 6:34 am #659048
The faster a firm can push items around the cycle the lower its investment in working capital will be. Why is this sir?June 21, 2022 at 8:50 am #659055
Because they will have lower inventory levels (due to selling items quickly) and lower receivables (due to collecting cash from customers sooner).June 21, 2022 at 9:55 am #659062
Sir I still don’t understand why the lower investmentJune 21, 2022 at 4:56 pm #659067
If inventories and receivables are both lower, then the level of working capital will be lower and therefore there is less investment needed in the working capital.June 22, 2022 at 2:53 am #659090
Sir since the cash is comming in faster we are able to invest lesser working capital is this also correct?June 22, 2022 at 3:30 am #659092
sir as you mentioned in the lectured operating cycle is how many days a business is without cash how will it survive on the days for example in the lectures paybles had to be paid 25 days but cash was not comming in till 50 days. How does it work?June 22, 2022 at 8:53 am #659097
Yes – if they have more cash then there is less need to raise money to finance the inventories etc..
If they have to pay the payables faster than they are receiving cash from receivables then they need to raise more finance to cover the ‘missing’ period.June 22, 2022 at 12:26 pm #659112
So longer the missing period the larger finance they will have to raise and hence the higher working capital. Is this statement correct?June 22, 2022 at 12:42 pm #659116
Yes – it is correct 🙂
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