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Discussion about: Inventory turnover, purchasing, cyclical sales, A/R collections, projected cash flows

1. Will you explain to me the relationship between inventory turnover and purchasing needs.
2. How can I elaborate (or explain) this statement "rapid corporate growth in sales and profits can cause financing problems"
3. What are the advantage and disadvantage of level production schedules in firms with cyclical sales?
4. How does the pattern of A/R collections affect the pro forma cash projections?

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1. Will you explain to me the relationship between inventory turnover and purchasing needs.
INVENTORY TURNOVER RATIO
The best run companies will minimize their investment in inventory. One ratio that is often used to monitor inventory is the Inventory Turnover Ratio. These ratio shows the number of times that a firm's inventory balance was turned ("sold") during a year.
It is calculated by dividing cost of sales by the average inventory level:
Inventory Turnover Ratio = Cost of Goods Sold/Average Inventory
A higher ratio indicates efficient management of inventory. A declining turnover rate might indicate poor management, slow moving goods, or a worsening economy.
The higher the inventory turnover the lesser will be the stock holding days. Thus the purchasing needs will be frequent it the stock holding days are less. The opposite is also true.

2. How can I elaborate (or explain) this statement "rapid corporate growth in sales and profits can cause financing problems"
Rapid corporate growth sales can lead to need of additional funds. Additional funds needed (AFN) are those funds required from external sources to increase the firm's assets to support a sales increase. A sales increase ...

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