Nmq Cash Conversion and Operations

Refer to the data on the first and second tabs of

SU_MBA6010_Final_Project_Information.xls provided in the Doc

Sharing area. Assume that all of MNQ Company's sales are credit

sales.

* Calculate and critique MNQ Company's cash

conversion and operating cycles from 2004 to 2008.

Submit your answers in a 3- to 5-page Microsoft Word document,

your calculations in a Microsoft Excel sheet.

Efficient working capital management is very important for financial success of a company. Working capital is calculated as:

Working Capital = Current Assets – Current Liabilities

Operating cycle and cash conversion cycle are very useful tools used in working capital management. The operating cycle and cash conversion cycle determines how efficient the working capital management of a company is. The operating cycle is the time period from acquisition of inventory until the receipt of cash. A shorter operating cycle is desirable for a company as shorter operating cycle means more no. of completed cycles per year and hence higher revenue and profit for the company. (Ross et. al., 2008)

On the other hand, the cash conversion cycle is the number of days it takes for a company to convert resources inputs into cash flows. Like operating cycle, shorter cash conversion cycle is desirable. Lower cash conversion cycle leads to higher operating profit margin and profitability of the company.

The Cash Conversion Cycle is calculated as:

Cash Conversion Cycle (CCC)= Inventory conversion period + Receivables conversion period - Payable conversion period

The Operating Cycle is calculated as:

Operating Cycle = Inventory conversion period + Receivables conversion period

(Ross et. al., 2008)

The components used in calculation of operating cycle and cash conversion cycle are: Inventory conversion period, Receivable conversion period, and payable conversion period.

The inventory conversion period is the length of time from the purchase of inventory to the time the sales are made on...