Podcast Beta
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.
False
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.
False
A conservative funding strategy involves funding seasonal requirements with Long-Term debt.
Signup and view all the answers
The Average Payment Period (APP) measures the time it takes to collect accounts receivable.
Signup and view all the answers
Current assets include inventory, accounts payable, marketable securities, and cash.
Signup and view all the answers
Inventory turnover can be maximized by turning over inventory as slowly as possible without stock outs.
Signup and view all the answers
A cash discount is offered to credit customers who pay after a specified time.
Signup and view all the answers
The Operating Cycle measures the time from the beginning of production to the sale of raw materials.
Signup and view all the answers
The Average Payment Period measures the time it takes to collect accounts receivable.
Signup and view all the answers
Carrying costs are the fixed costs of holding an item in inventory for a specific period.
Signup and view all the answers
A conservative funding strategy involves funding permanent requirements with Short-Term debt.
Signup and view all the answers
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.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
Test your understanding of financial management concepts, including inventory turnover, cash discounts, operating cycle, and current assets.
