38 Fraley Street
Kane, PA 16735
Fax (814) 837-2267
Phone( (814) 837-9150
Analysis of Cash Cycle
This analysis of the cash cycle measures the number of days needed from the purchase of an item of inventory to the eventual collection of cash from the accounts receivable upon sale. An analysis of these ratios provides insight into the cash flow components.
|Number of days to sell inventory||
he product of this ratio presents the number
of days required to sell the company's ending inventory. The effects of
purchasing policies and changes in sales become evident from a historical
This ratio presents the annual dollar sales of the
Company divided by 365 days.
|Days sales in accounts receivable||
The result of this ratio is the number of days it
takes to collect an average invoice. The result can be
affected by seasonal fluctuations in sales.
This ratio presents the annual dollar purchases of
the Company divided by 365 days.
|Days purchases in accounts payable||
Changes in the number of days that it takes to pay
for merchandise purchases may present indications of
short-term liquidity problems or the inability to take
advantage of purchase discounts.
|Days in Cash Cycle||
This ratio reflects the entire cash cycle from the
initial purchase of inventory to the sale of the
merchandise and its collection in cash. The number of
days in accounts payable reduces the cash cycle and is
reflected in the formula as a reduction of the sum of
inventory days and receivable days.
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Ratio Analysis Selections