The CEO of your computer chip manufacturing company was recently very pleased to announce that growth rates in the organization appear to be topping 30% per annum and this trend is expected to continue into the foreseeable future. While everyone in the organization seems pleased with this announcement, from your vantage point as the cash manager, you have noticed a considerable decrease in the cash position of the organization since this rapid growth began to occur. Identify the potential causes of the decrease of cash and the problems the company may potentially face if this situation continues. Include in your answer a discussion on the cash conversion cycle
The potential causes of the decrease of cash could be the longer inventory conversion period, longer receivables collection period, and short payables deferral period, which could lead to longer cash conversion cycle. As the cash conversion cycle is the length of time between paying for raw materials and receiving cash form the sale of finished goods, the ...
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