nursing discussion question
Why is understanding the relationship between the cash conversion cycle (CCC) and net working capital important to the contemporary business executive? Explain ways in which executive decisions regarding the CCC and net working capital can affect a company both adversely and beneficially. Support your response with a specific example from the business world.
.A business executive needs to know where the money is coming from and where it is going in the business in order to stay on top of the finances. Without knowing the best ways to spend and receive money efficiently the company may make decisions that are not in line with its goals. CCC is a relative term that enables us to compare the performance in working capital management with other peers in the market. While working capital is an absolute value and doesn’t enable the comparison of this measure with other peers of different sizes and patterns. The cash conversion cycle (CCC) is a metric that expresses the length of time, in days, that it takes for a company to convert resource inputs into cash flows. The cash conversion cycle attempts to measure the amount of time each net input dollar is tied up in the production and sales process before it is converted into cash through sales to customers. (Investopedia, n.d.). Apple is very efficient in managing their cash conversion cycle as compared to Samsung. Apple essentially takes few days than Samsung in paying bills. Apple has a more direct sales force and Samsung goes through distributors who have to pay them. They also noticed a correlation in a product, Apple has fewer products that require many similar parts, and Samsung has a wider variety that requires a larger supply of manufacturing parts. Knowing all the facets of company money allows for more control and more accurate forecasts for spending and expansion. It also ensures that there is enough liquidity that if an issue arises the money is easily made available.
Forbes.com. (2016). Why is apple’s cash conversion cycle significantly shorter than Samsung’s? Retrieved from http://www.forbes.com/sites/greatspeculations/2016/06/07/why-is-apples-cash-conversioncycle-significantly-shorter-than-samsungs/#28a5c9802806
Investopedia. (n.d.). Cash conversion cycle ccc. Retrieved from http://www.investopedia.com/terms/c/cashconversion…
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