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What are the Characteristics of a firm with long operating cycle?
A firm with a long operating cycle typically has extended periods between the acquisition of inventory and the collection of receivables. This often occurs in industries such as manufacturing or construction, where production time and project completion can be lengthy. Such firms may require significant working capital to sustain operations during this extended cycle, and they often face higher risks related to cash flow management. Additionally, they may rely on strong supplier and customer relationships to manage inventory and receivables effectively.
How is the cash conversion cycle calculated and what factors are involved in determining its value?
The cash conversion cycle is calculated by adding the days inventory outstanding (DIO) to the days sales outstanding (DSO) and then subtracting the days payables outstanding (DPO). Factors involved in determining its value include how quickly a company can sell its inventory, how long it takes to collect payments from customers, and how long it takes to pay suppliers. A shorter cash conversion cycle indicates better efficiency in managing cash flow.
What does a company's solvency mean?
Solvency refers to a company's ability to meet its long-term obligations through its operations. It is often confused with liquidity, which refers to a firm's ability to meet it's financial obligations with cash and short-term assets it currently holds. A company may be illiquid but solvent; meaning that they are starved of cash (and no one will give them cash), but have long-term assets that are valuable enough to meet obligations in the long-term.
Long term loans are repaid from what source of cash flow?
Long term loans are part of cash flow from financing activities.
A conservatively financed firm would?
A conservatively financed firm typically maintains a lower level of debt relative to equity, prioritizing financial stability and risk management. This approach helps the firm minimize its financial risk and maintain steady cash flow, which can be particularly advantageous during economic downturns. By relying more on equity financing, the firm may also avoid the pressures of debt repayments, allowing for greater flexibility in operations and investment opportunities. Overall, such a firm aims for long-term sustainability over aggressive growth strategies.
What are the Characteristics of a firm with long operating cycle?
A firm with a long operating cycle typically has extended periods between the acquisition of inventory and the collection of receivables. This often occurs in industries such as manufacturing or construction, where production time and project completion can be lengthy. Such firms may require significant working capital to sustain operations during this extended cycle, and they often face higher risks related to cash flow management. Additionally, they may rely on strong supplier and customer relationships to manage inventory and receivables effectively.
What is the conclusion on cash management?
Cash is the lifeblood of each and every business. If a firm maintain its cash level at optimum way then it should succeed in long-term. Unless a firm fail to maintain optimum cash level then it has lose its business.
What factors affect the operating cycle?
1. Liquidity Vs Profitability decisions of the firm; The higher a firm retains liquid assets (cash), the shorter the operating cycle2. Industry norms: eg Retail vs construction. A Construction firm will have a longer operating cycle, since they have long term projects, while the bulk of payment is received towards the end of the project. A retail business on the other hand, eg a supermarket has a short or even negative operating cycle, since there are very few credit customers, there is high turnover and can negotiate long credit period with suppliers.3. Management efficiency. The less efficient the management of a firm, the longer the operating cycle and vice versa.
How does maximizing the long-run expected cash flows of the firm translate into maximazing shareholders wealth?
Maximizing the long-run expected cash flows of a firm does not inherently translate into maximizing shareholder wealth. I believe the question that is trying to be posed here is how do long-run expected free cash flows of the firm translate into maximizing shareholder wealth. That answer is because free cash flows are the amount of money available to a firm to either reinvest into the business or distribute out to shareholders. Firms that generate free cash flows and then reinvest in their own business will generally increase their stock price (A company that is making profits and growing will be valued higher) or the firm can pay out some of those free cash flows in the form of dividends (obvious value to the shareholders). Long-run expected cash flows don't prove anything. If I have a million dollars that I want to invest into a lemonade stand, and that lemonade stand costs me $1,000 per month to operate ($1,000 outflow per month) but my monthly revenue is only $800 ($800 inflow per month) then I will have cash flows of -$200 per month. Since I'm ready to invest a million this will be sustainable for quite a long time, but it by no means is maximizing my (me being the sole shareholder) wealth.
How is the cash conversion cycle calculated and what factors are involved in determining its value?
The cash conversion cycle is calculated by adding the days inventory outstanding (DIO) to the days sales outstanding (DSO) and then subtracting the days payables outstanding (DPO). Factors involved in determining its value include how quickly a company can sell its inventory, how long it takes to collect payments from customers, and how long it takes to pay suppliers. A shorter cash conversion cycle indicates better efficiency in managing cash flow.
Why Profit maximization can never be the objective of a firm?
Profit maximization IS an objective of a firm, but its not the ONLY objective. A firm will have different long term and short term goals which will vary depending on the current business cycle. If you need a more specific answer, please ask a more specific question. - Stavka
What does a company's solvency mean?
Solvency refers to a company's ability to meet its long-term obligations through its operations. It is often confused with liquidity, which refers to a firm's ability to meet it's financial obligations with cash and short-term assets it currently holds. A company may be illiquid but solvent; meaning that they are starved of cash (and no one will give them cash), but have long-term assets that are valuable enough to meet obligations in the long-term.
Does the amount of cash in the bank measure net income?
No. Cash can come from several sources - investors, bank loans, sales of assets (the firm's buildings, or equipment), payments from people who owe the firm money, etc. Likewise, it can go to several places - back to investors, to buy long-lived assets and pay suppliers, etc. Here are a couple of key difference between cash flow and net income (somewhat simplified): When a firm has expenditures that will have value for more than 1 year (i.e. to buy a new factory), this is treated as buying asset, so it does not effect income, but it will effect cash if that's how they paid. The expense from using the factory will be incurred as depreciation over its life. Even though the firm may have used cash to pay for it all up front, it only effects net income a little each year. Net income is difference between revenue and expenses. Revenue can only be recognized when goods are transferred or services rendered, but in the real world this usually doesn't coincide with cash in the bank (because sales are made on credit). Expenses must be recognized at the same time that sales are made. Here is an example to show this: A firm uses cash to purchase $100 of inventory in 2007 and delivers it to a customer at a selling price of $200 in in 2008. The customer finally pays the bill for it in 2009. In 2007, the firm spent $100 in cash, but has no expense for this transaction, because the inventory is still "on the books". It 2008, the firm made $100 of net income on this transaction ($200 revenue - $100 expense) even though no cash traded hands. In 2009, the firm has an extra $200 in the bank, but can not treat it as income because they did not earn the money in 2009 (instead, it is a decrease in accounts receivable). Hope this helps. No. Cash can come from several sources - investors, bank loans, sales of assets (the firm's buildings, or equipment), payments from people who owe the firm money, etc. Likewise, it can go to several places - back to investors, to buy long-lived assets and pay suppliers, etc. Here are a couple of key difference between cash flow and net income (somewhat simplified): When a firm has expenditures that will have value for more than 1 year (i.e. to buy a new factory), this is treated as buying asset, so it does not effect income, but it will effect cash if that's how they paid. The expense from using the factory will be incurred as depreciation over its life. Even though the firm may have used cash to pay for it all up front, it only effects net income a little each year. Net income is difference between revenue and expenses. Revenue can only be recognized when goods are transferred or services rendered, but in the real world this usually doesn't coincide with cash in the bank (because sales are made on credit). Expenses must be recognized at the same time that sales are made. Here is an example to show this: A firm uses cash to purchase $100 of inventory in 2007 and delivers it to a customer at a selling price of $200 in in 2008. The customer finally pays the bill for it in 2009. In 2007, the firm spent $100 in cash, but has no expense for this transaction, because the inventory is still "on the books". It 2008, the firm made $100 of net income on this transaction ($200 revenue - $100 expense) even though no cash traded hands. In 2009, the firm has an extra $200 in the bank, but can not treat it as income because they did not earn the money in 2009 (instead, it is a decrease in accounts receivable). Hope this helps.
What is difference between current assets and long term assets?
Current asset: Cash and other resources that are expected to turn to cash or to be used up within one year of the balance sheet date. (If a company's operating cycle is longer than one year, an item is a current asset if it will turn to cash or be used up within the operating cycle.) Current assets are presented in the order of liquidity, i.e., cash, temporary investments, accounts receivable, inventory, supplies, prepaid insurance Long term asset: Non-current assets. Assets that are not intended to be turned into cash or be consumed within one year of the balance sheet date.
What services are offered by Peachtree Settlement Funding?
The Peachtree Settlement Funding company is a firm that essentially assists people with getting cash from structured settlements. This includes annuities, lottery winnings, and other long-term payments.
How long is a panda's life cycle?
a pandas life cycle is about 22 years long
How long do lizards live What is their life cycle?
how long do lizard live what is their life cycle
