2 pages/≈550 words
Business & Marketing
MCGEE'S CASH CYCLE (Case Study Sample)
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MCGEE’S CASH CYCLE
(26, October, 2010)
McGee’s Cash Cycle
Average daily sales = Annual Sales = $15,968,750 = $44,358
Average cost of goods sold = Annual cost of good sold = $10,675,000 = $29,653
Average daily purchases = Annual Purchases = $11,252,500 = $31,257
Average daily operating expenses = Annual Daily Operating Expenses = $4,462,500
Conversion of assets into daily equivalent
= Average daily sales + Average daily Costs of goods= $44,358 + $29,653 = $ 74,011
Days cash = cash amount in the balance sheet = 74, 011 x365 = 609 days
Average daily sales 44,358
Asset cash to cash cycle= Days cash + inventory days
Conversion of short term liabilities into daily equivalents
= average daily purchases + operating expenses= 31257+12396= 43653
Liability cash-to-cash cycle = average daily liabilities x 365 = 43,653 x 365 = 537 days
Cost of goods sold 29,653
The number of days that McGhee will need to finance itself is (609-537) days, i.e. =72 days.
This number may be used in determining the amount of external financing necessary by calculating the difference between when cash will be received from customers who owe the business and when short term liabilities are due for payment. It is important as it will provide information on when to expect payment from debtors so as to decide when it would be possible to pay the external financiers.
The sources of external financing that are...
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