Question

What should I look for in Apple's operating cycles to find foreign exchange risks?

What should I look for in Apple's operating cycles to find foreign exchange risks?

Homework Answers

Answer #1

The formula for operating cycle is given as:

Operating Cycle = Days' Sales of Inventory + Days' Sales outstanding (Accounts Receivable)

The inventory poses no or minimum threat to the exchange rate risk but accounts receivbales are something we should be careful about. The accounts receivables will be in different countries' currencies and hence will pose an exposure for Apple to these currencies. If the value of these currencies were to go down, it would result in a loss to Apple. Hence, you should look at how much of the accounts receivables are there in which all currencies and manage the risk accordingly by hedging or netting them off with expenses etc.

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