Although the formula for calculation is same as that of Cash Conversion cycle the emphasis in Operating cycle is the management of critical operational assets of the company to result in operational efficiency. Operating Cycle = Inventory Period + Accounts Receivable period – Accounts payable period. Thus, Operating Cycle for the period ending 2008 is 249 and for the period ended 2007 is 548.
The working capital(Current Assets – Current Liabilities) of the company has marginally reduced from $ 7124 for the year 2007 to $6976 for the year 2008. The current ratio(Current Assets- Current Liabilities) of the company has improved from 1.60 for the year 2007 to 1.66 for the year 2008. The recommendations for improving the Working capital situation are:
2) The working capital position of the company is effected by the huge receivalbes in the credit card segment. Credit Card receivables of the company account for about 46% of the total current assets. The company should have a stringent policy in place for recovery of credit card receivables. The company should try to factor the credit card receivables to some factoring organization and minimize the write-offs. This would result in cash inflow and would improve the working capital position of the company.
3) The company has acquired Fixed assets from its earnings. Thus, the company has used its short term sources for long term applications which is not a prudent financial policy. The company should acquire fixed assets from long term borrowings only. This will result in improvement of working capital position.
1) 2Reduce the inventory holding period without resulting in stock-out situation. 3Start by reducing your inventory and increasing inventory turnover. The ideal target would be of 30 days Inventory holding period.
The Financial effect of the above recommendations is that the Absolute value of the Inventory and Receivables would ...
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