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Working capital Kaplan question

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 5 years ago by vishnutv.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • January 8, 2020 at 9:54 am #557131
    vishnutv
    Member
    • Topics: 34
    • Replies: 30
    • ☆☆

    How an increase in cash operating cycle will decrease profitability?

    January 8, 2020 at 2:32 pm #557162
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    You 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 #557182
    vishnutv
    Member
    • Topics: 34
    • Replies: 30
    • ☆☆

    Didn’t get you

    January 8, 2020 at 3:37 pm #557185
    vishnutv
    Member
    • Topics: 34
    • Replies: 30
    • ☆☆

    Increase in operating cycle can increase profits receivable will be higher

    January 9, 2020 at 7:39 am #557222
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    See 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 #557600
    vishnutv
    Member
    • Topics: 34
    • Replies: 30
    • ☆☆

    Ok

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    Posts
Viewing 6 posts - 1 through 6 (of 6 total)
  • The topic ‘Working capital Kaplan question’ is closed to new replies.

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