Question

What can we say about Company's current financial condition with below data between the tears 2009 to 2015?

Company A

2009 2010 2011 2012 2013 2014 2015

Collection period 51 76 59 64 70 52 67

Inventory period 47 52 55 56 62 59 56

Payment period 36 49 46 50 59 56 92

Cashtocashperiod 62 79 68 70 73 55 31

Company B

2009 2010 2011 2012 2013 2014 2015

Collection period 66 82 90 110 111 115 154

Inventory period 84 85 100 83 93 95 105

Payment period 61 50 50 49 62 62 77

Cash tocash period 89 117 140 144 143 148 183

Answer 1

For company A:-

As we can see that cash to cash period is reducing which is a good sighn for the financial status of the company. This is the result of increasing payment period and decreasing inventory period and collection period which has reduced the cash to cash. A reduced cash to cash period means that company is doing well and is able to churn cash at a faster rate.

For company B:-

As we can see that cash to cash period is increasing which is not a good sighn for the financial status of the company. This is the result of increasing inventory period and collection period which has reduced the cash to cash. An increased cash to cash period means that company is doing well and is not able to churn cash at a faster rate and hence the financial status is not good.