Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Working capital Kaplan question
- This topic has 5 replies, 2 voices, and was last updated 4 years ago by vishnutv.
- AuthorPosts
- January 8, 2020 at 9:54 am #557131
How an increase in cash operating cycle will decrease profitability?
January 8, 2020 at 2:32 pm #557162You effectively asked the same thing in reverse yesterday (and I answered you)!!
A increase in the cash operating cycle happens because they are taking longer to collect debts or are carrying more inventories. The more cash tied up in receivables and inventories then the less interest they could be earning on the cash (or the more interest they will have to pay if it means having to borrow money) – in either case this results in lower profits.
January 8, 2020 at 3:36 pm #557182Didn’t get you
January 8, 2020 at 3:37 pm #557185Increase in operating cycle can increase profits receivable will be higher
January 9, 2020 at 7:39 am #557222See my other answer.
An increase in the operating cycle means that receivables days are higher – it does not necessarily mean that they are selling more and does not mean higher profits.
January 10, 2020 at 10:49 am #557600Ok
- AuthorPosts
- The topic ‘Working capital Kaplan question’ is closed to new replies.