Fundamentals of Financial Management, Concise Edition (MindTap Course List)
9th Edition
ISBN: 9781305635937
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Question
Chapter 15, Problem 2Q
Summary Introduction
To explain: The cash conversion cycle, and its relationship with firm’s profitability.
Introduction:
Cash Conversion Cycle:
It indicates that duration in which funds keep involved from the production process to collection of cash through the sale process.
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Define the cash conversion cycle (CCC) and explain why, holding other things constant, afirm’s profitability would increase if it lowered its CCC.
Does an increase in the long-term growth rate of free cash flowsalways cause an increase in the value of operations? Explain youranswer.
How would a reduction in the cash conversion cycle increase profitability?
Chapter 15 Solutions
Fundamentals of Financial Management, Concise Edition (MindTap Course List)
Ch. 15 - What are some pros and cons of holding high levels...Ch. 15 - Prob. 2QCh. 15 - What are the two definitions of cash, and why do...Ch. 15 - Prob. 4QCh. 15 - What are the four key factors in a firms credit...Ch. 15 - Prob. 6QCh. 15 - Why is some trade credit called free while other...Ch. 15 - Define each of the following loan terms, and...Ch. 15 - Prob. 9QCh. 15 - Indicate using a (+), (), or (0) whether each of...
Ch. 15 - CASH CONVERSION CYCLE Parramore Corp has 12...Ch. 15 - Prob. 2PCh. 15 - COST OF TRADE CREDIT AND BANK LOAM Lancaster...Ch. 15 - CASH CONVERSION CYCLE Zane Corporation has an...Ch. 15 - RECEIVABLES INVESTMENT McEwan Industries sells on...Ch. 15 - WORKING CAPITAL INVESTMENT Pasha Corporation...Ch. 15 - CASH CONVERSION CYCLE Chastain Corporation is...Ch. 15 - CURRENT ASSETS INVESTMENT POLICY Rentz Corporation...Ch. 15 - Prob. 9PCh. 15 - CASH BUDGETING Helen Bowers, owner of Helens...Ch. 15 - CASH BUDGETING Rework problem 15-10 using a...Ch. 15 - Prob. 12IC
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- Define the term capital intensity. Explain how a decline in capital intensity would affect the AFN, other things held constant. Would economies of scale combined with rapid growth affect capital intensity, other things held constant? Also, explain how changes in each of the following would affect AFN, holding other things constant: the growth rate, the amount of accounts payable, the profit margin, and the payout ratio.arrow_forwardHow much is the gross benefit (annual return on the investment of increase in the average cash balance) of the lockbox system?Should the company make the investment and adopt the lockbox system? Yes or noarrow_forwardEfficiency Does CEB manage efficiently its working capital (current assets and current liabilities)? (Justify using cash conversion cycle). When comparing the two companies, which between the two is more efficient?arrow_forward
- Mention and explain in brief any two ways for a company to reduce it's cash conversion cycle.arrow_forwardWhy is it important for a firm to minimize the length of its cash conversion cycle (CCC)? How can the firm minimize it? What are the strategies that the firm should consider while trying to minimize the CCC?arrow_forwardWhat is the effect of changes in cash flows, investment cost and cash outflows on profitability (present value) index Profitability index will decrease with an increase in cash flows, a decrease in investment cost, or a decrease in cash outflows. Profitability index will decrease with an increase in cash outflows, an increase in investment cost, or an increase in cash inflows. Profitability index will increase with an increase in cash inflows, an increase in investment cost, or an increase in cash outflows. Profitability index will increase with an increase in cash flows, a decrease in investment costs or a decrease in cash outflows.arrow_forward
- Explain the concept of intrinsic value, and critically appraise whether firms that have higher free cash flows should also have a higher value.arrow_forward- How would a reduction in the cash conversion cycle increase profitability? What aresome actions a firm can take to shorten its cash conversion cycle?- Is it possible for a firm’s cash conversion cycle to be negative (or net operating workingcapital to be negative)? Explain why or why not. If there exists a firm with negativeCCC, give an example, what are characteristics of such company.arrow_forward. If the company reduces its DSO without seriouslyaffecting sales, what effect would this have onfree cash flow (1) in the short run and (2) in thelong run?arrow_forward
- Discuss the advantages and disadvantages of options in the financial markets? What is Cash conversion cycle? How the company can improve its cash conversion cycle? give three suggestionsarrow_forwardWhat are some tools that companies have to manage their (net operating) working capital? Provide examples of inventory and receivables management techniques. What is the Cash Conversion Cycle and why is this a useful metric? Are there risks if this is too low?arrow_forwardComment on the company that has a longer Cash Conversion Cycle. Do they need to improve cycle? Give your insights.arrow_forward
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