BUSINESS ADMINISTRATION
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Raw material, work in progress, finished goods, sales
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Cash, raw material, work in process, finished goods, sales, cash
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Raw material, work in process, finished goods
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Cash, raw material, work in process, finished goods, sales
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Detailed explanation-1: -The operating cycle of a manufacturing company involves three phases: Acquisition of resources such as raw material, labour, power and fuel etc. Manufacture of the product which includes conversion of raw material into work-in-progress into finished goods. Sale of the product either for cash or on credit.
Detailed explanation-2: -An Operating Cycle refers to the days required for a business to receive inventory, sell the inventory, and collect cash from the sale of the inventory. This cycle plays a major role in determining the efficiency of a business. Therefore, this statement is correct.
Detailed explanation-3: -The cash operating cycle (also known as the working capital cycle or the cash conversion cycle) is the number of days between paying suppliers and receiving cash from sales. Cash operating cycle = Inventory days + Receivables days – Payables days. (iii) finished goods days.
Detailed explanation-4: -Working Capital Cycle (WCC) is the time it takes to convert net current assets and current liabilities (e.g. purchased stock) into cash. A long cycle means tying up capital for a longer time without earning a return. Short cycles allow your business to free up cash faster and to be more agile.