What is the difference between a firm’s cash cycle and its operating cycle?

What is the difference between a firm’s cash cycle and its operating cycle?

Answer the following
questions:

a. What is the difference between a firm’s cash
cycle and its operating cycle?

b. How will a firm’s cash cycle be affected if a
firm increases its inventory, all else being equal?

c. How will a firm’s cash cycle be affected if a
firm begins to take the discounts offered by its suppliers, all else being
equal?

4.The Greek Connection had sales of $32 million in 2012, and a cost
of goods sold of $20 million. A simplified balance sheet for the firm appears
below:

THE GREEK CONNECTION

Balance Sheet

As of December 31, 2012 (in $ thousand)

Assets

Liabilities and Equity

Cash

Accounts receivable

Inventory

$ 2,000

3,950

1,300

Accounts payable

Notes payable

Accruals

$ 1,500

1,000

1,220

Total current assets

$ 7,250

Total current liabilities

Long-term debt

$ 3,720

3,000

Net plant, property,

and equipment

$ 8,500

Total liabilities

Common equity

$ 6,720

9,030

Total assets

$ 15,750

Total liabilities and equity

$ 15,750

a. Calculate The Greek Connection’s net working
capital in 2012.

b. Calculate the cash conversion cycle of The
Greek Connection in 2012.

c. The industry average accounts receivable days
is 30 days. What would the cash conversion cycle for The Greek Connection have
been in 2012 if it had matched the industry average for accounts receivable
days?

5.
Assume the credit terms
offered to your firm by your suppliers are 3/5, Net 30. Calculate the cost of
the trade credit if your firm does not take the discount and pays on day 30.


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