Case summary:
Chief financing officer of Company RR, a speciality coffee manufacturer, is re-thinking about its working capital policy and wants to re-new its line of credit and it wouldn’t ready to build payroll, probably forcing the company out of business.
The scare has forced the company to examine carefully about each component of working capital to make sure it is required, and decide whether the goal is to determine the line of credit are often eliminated entirely.
Previously, it has done little to look at assets and mainly because of poor communication among business functions and the decisions about working capital cannot be made at vacuum.
To discuss: Effect of dropping inventory by company without affecting sales on
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Intermediate Financial Management (MindTap Course List)
- Which of the following methods can NOT be used to improve the firm’s cash conversion cycle? Decrease the firm’s inventory conversion cycle. Decrease the firm’s receivables collection period. Decrease the firm’s payables deferral period. Increase the firm’s payables deferral period.arrow_forwardWhich one of the following statements is correct? A. If a firm decreases its inventory period, its accounts receivable period will also decrease. B. The longer the cash cycle, the more cash a firm typically has available to invest. C. A firm would prefer a negative cash cycle over a positive cash cycle. D. Decreasing the inventory period will also decrease the payables period. E. Both the operating cycle and the cash cycle must be positive values.arrow_forwardWhich of the following increases the cash conversion cycle? A.A decrease in inventory turnover B.An increase in the cash discount C.An increase in accounts payable D.A decrease in inventory levelarrow_forward
- In an inflationary economy, the use of FIFO maximizes the cost of goods sold and minimizes the cost of ending inventory. True or Falsearrow_forwardWhich of the following would increase risk? a. Raise the level of working capital b. Increase the amount of equity financing c. Increase the amount of short term borrowing d. Decrease the amount of inventory by formulating an effective inventory policyarrow_forwardwhat is the impact on operating cash flows (increase or decrease) for changes in inventory levels (increase or decrease).arrow_forward
- Explain the purpose of the inventory turnover ratio? Is it possible for a firm to have a high current ratio and still have difficulty paying its current bills? Why or why not?arrow_forwardHow would reported income differ if LIFO rather than FIFO were used when purchase prices are rising? When purchase prices are falling?arrow_forwardIf inventory prices are rising, which inventory costing method should produce the smallest payment for taxes?arrow_forward
- Which of the following statements is true? a. Net cash flow from operating activities must be determined using the indirect method. b. The indirect method adjusts sales for changes in noncash items to produce net cash flow from operating activities. c. Many companies prefer the indirect method because it is easier and less costly to prepare. d. The FASB prefers the indirect method.arrow_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_forwardThe reliability of short-term cash forecast depends most heavily on the quality of: a) sales forecast b) cost of goods sold forecast c) current ratio forecast d) shares outstanding forecastarrow_forward
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