Podcast
Questions and Answers
The Operating Cycle (OC) is the time from the beginning of the production to the collection from the sale of the raw materials.
The Operating Cycle (OC) is the time from the beginning of the production to the collection from the sale of the raw materials.
False
Firms should prioritize paying accounts payable as quickly as possible to maintain a good credit rating.
Firms should prioritize paying accounts payable as quickly as possible to maintain a good credit rating.
False
Carrying costs are the fixed clerical costs of placing and receiving an inventory order.
Carrying costs are the fixed clerical costs of placing and receiving an inventory order.
False
A conservative funding strategy involves funding seasonal requirements with Long-Term debt.
A conservative funding strategy involves funding seasonal requirements with Long-Term debt.
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The Average Payment Period (APP) measures the time it takes to collect accounts receivable.
The Average Payment Period (APP) measures the time it takes to collect accounts receivable.
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Current assets include inventory, accounts payable, marketable securities, and cash.
Current assets include inventory, accounts payable, marketable securities, and cash.
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Inventory turnover can be maximized by turning over inventory as slowly as possible without stock outs.
Inventory turnover can be maximized by turning over inventory as slowly as possible without stock outs.
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A cash discount is offered to credit customers who pay after a specified time.
A cash discount is offered to credit customers who pay after a specified time.
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The Operating Cycle measures the time from the beginning of production to the sale of raw materials.
The Operating Cycle measures the time from the beginning of production to the sale of raw materials.
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The Average Payment Period measures the time it takes to collect accounts receivable.
The Average Payment Period measures the time it takes to collect accounts receivable.
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Carrying costs are the fixed costs of holding an item in inventory for a specific period.
Carrying costs are the fixed costs of holding an item in inventory for a specific period.
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A conservative funding strategy involves funding permanent requirements with Short-Term debt.
A conservative funding strategy involves funding permanent requirements with Short-Term debt.
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Study Notes
Inventory Management
- Turn over inventory as quickly as possible to avoid stock outs and lost sales.
Discounts and Payments
- Cash discount: a percentage deducted from the purchase price for credit customers who pay within a specified time.
Operating Cycle
- Operating Cycle (OC): the time from the beginning of production to the collection of payment from the sale of the finished product.
Accounts Payable Management
- Pay accounts payable as slowly as possible without damaging the firm's credit rating.
- Average Payment Period (APP): the time it takes to pay accounts payable, measured in days.
Asset Classification
- Current assets: include inventory, accounts receivable, marketable securities, and cash.
Inventory Costs
- Order costs: fixed clerical costs of placing and receiving an inventory order.
- Carrying costs: variable costs per unit of holding an item in inventory for a specific period.
Funding Strategies
- Permanent funding requirement: a constant investment in operating assets resulting from constant sales over time.
- Conservative funding strategy: funding both seasonal and permanent requirements with Long-Term debt.
Inventory Management
- Turn over inventory as quickly as possible to avoid stock outs and lost sales.
Discounts and Payments
- Cash discount: a percentage deducted from the purchase price for credit customers who pay within a specified time.
Operating Cycle
- Operating Cycle (OC): the time from the beginning of production to the collection of payment from the sale of the finished product.
Accounts Payable Management
- Pay accounts payable as slowly as possible without damaging the firm's credit rating.
- Average Payment Period (APP): the time it takes to pay accounts payable, measured in days.
Asset Classification
- Current assets: include inventory, accounts receivable, marketable securities, and cash.
Inventory Costs
- Order costs: fixed clerical costs of placing and receiving an inventory order.
- Carrying costs: variable costs per unit of holding an item in inventory for a specific period.
Funding Strategies
- Permanent funding requirement: a constant investment in operating assets resulting from constant sales over time.
- Conservative funding strategy: funding both seasonal and permanent requirements with Long-Term debt.
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Description
Test your understanding of financial management concepts, including inventory turnover, cash discounts, operating cycle, and current assets.
