Question

- If firm reduces its inventory without adversely affecting sales, what effect will this have on...

- If firm reduces its inventory without adversely affecting sales, what effect will this have on the cash position?

- If firm reduces its DSO without adversely affecting sales, how would this affect its cash position?

Homework Answers

Answer #1

1)

If firm reduces its inventory without adversely affecting sales:

Short run: Cash will increase as purchase of inventory reduces.

Long run: Company is likely to take steps to reduce its cash holdings if no need of cash.

2)

If firm reduces its DSO without adversely affecting sales

Short run: If customers pay sooner, this increases cash holdings.

Long run: Over time, the company would hopefully invest the cash in more productive assets, or pay it out to shareholders.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Consider the following two situations, and explain how would each situation affect a company's cash position?...
Consider the following two situations, and explain how would each situation affect a company's cash position? - If firm reduces its inventory without adversely affecting sales, what effect will this have on the cash position? - If firm reduces its DSO without adversely affecting sales, how would this affect its cash position?
A firm wants to sharply reduce its cash conversion cycle. Which of the following steps would...
A firm wants to sharply reduce its cash conversion cycle. Which of the following steps would reduce its cash conversion cycle? The company increases its average inventory without increasing its sales. The company reduces its days sales outstanding (DSO). The company starts paying its bills sooner, which reduces its average accounts payable without reducing its sales. Statements A and B are correct.
Chastains Corporation is trying to determine the effect of its inventory turnover ratio and days sales...
Chastains Corporation is trying to determine the effect of its inventory turnover ratio and days sales outstanding (DSO) on its cash conversion cycle. Chastains 2016 sale (all on credit) were $121000; its cost of goods sold is 80% of sale; and it earned a net profit of 2%, or 2420. It turned over its inventory 6 times during the year, and its DSO was 36 days. The firm had fixed assets totaling $30000. Chastains payable deferral period is 35 days....
Chastain Corporation is trying to determine the effect of its inventory turnover ratio and days sales...
Chastain Corporation is trying to determine the effect of its inventory turnover ratio and days sales outstanding (DSO) on its cash conversion cycle. Chastain's 2016 sales (all on credit) were $290,000; its cost of goods sold is 80% of sales; and it earned a net profit of 5%, or $14,500. It turned over its inventory 6 times during the year, and its DSO was 30.5 days. The firm had fixed assets totaling $45,000. Chastain's payables deferral period is 45 days....
3. Winston Inc. is trying to determine the effect of its inventory turnover ratio and days...
3. Winston Inc. is trying to determine the effect of its inventory turnover ratio and days sales outstanding on its cash conversion cycle. Winston's 2015 sales (all on credit) were $127,000 and its cost of goods sold was 75% of sales. It turned over its inventory 9 times during the year. Its receivables balance at the end of the year was $13,105.05 and its payables balance at the end of the year was $7,417.15. Using this information calculate the firm's...
Q: If a company recently installed an inventory management system which reduces the average inventory days,...
Q: If a company recently installed an inventory management system which reduces the average inventory days, how would working capital and free cash flow to firm be affected (assume sales and profit margins remain unchanged)? Briefly explain.
QUESTION 1 What should be done to maximize shareholder wealth and thus the value of the...
QUESTION 1 What should be done to maximize shareholder wealth and thus the value of the firm? a. Raise the free cash flows of the business. b. Decrease the size of expected cash flow of the company. c. Slow down the cash receipt of the organization. d. Increase the risk level of the firm. 1 points    QUESTION 2 Which statement about financial statements is correct? a. The balance sheet gives us a picture of the firm’s financial position at...
What are some political risks in Brazil that would be affecting a technology firm with its...
What are some political risks in Brazil that would be affecting a technology firm with its operations?
Ingram Inc. carries an average inventory of $1,125,000. Its annual sales are $15 million, its cost...
Ingram Inc. carries an average inventory of $1,125,000. Its annual sales are $15 million, its cost of goods sold is 75% of annual sales, and its average collection period is twice as long as its inventory conversion period. The firm buys on terms of net 30 days, and it pays on time. Its new CFO wants to decrease the cash conversion cycle by 10 days, based on a 365-day year. He believes he can reduce the average inventory to $970,890...
Winston Inc. is trying to determine the effect of its inventory turnover ratio and days sales...
Winston Inc. is trying to determine the effect of its inventory turnover ratio and days sales outstanding on its cash conversion cycle. Winston's 2015 sales (all on credit) were $103,000 and its cost of goods sold was 75% of sales. It turned over its inventory 8.67 times during the year. Its receivables balance at the end of the year was $13,174.77 and its payables balance at the end of the year was $7,413.08. Using this information calculate the firm's cash...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT