Cash management, short term financing, interest rate

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? Describe the importance of the cash conversion cycle.

? Compare and contrast various cash management techniques.

? Compare and contrast the various methods of short-term financing.

? Explain the determinants of interest rates

1) Describe the importance of the cash conversion cycle.

The Asset Conversion Cycle is usually referred to as the Cash Conversion Cycle or Cash Cycle. The Cash Conversion Cycle represents the number of days it takes a company to purchase raw materials, convert them into finished goods, sell the finished product to a customer and receive payment from the customer / account debtor for the product. The cash conversion cycle is important because it represents the number of days a firm's cash is occupied with its operations.
A firm wants this cycle to be as short as possible. Therefore, a downward trend in this cycle is a positive signal while an upward trend is a negative signal. When the cash conversion cycle becomes short cash becomes free for other uses. When the cash conversion cycle lengthens, cash remains tied up in the firm's core operations, leaving little scope for other uses of this cash flow.

The Cash Conversion Cycle has three components:

Accounts Receivable Turnover Days
Inventory Turnover Days
and Payables Turnover Days.

Put simply, the cash conversion cycle of a company is obtained by adding the Accounts Receivable Turnover Days and the Inventory Turnover Days and subtracting ...