Unit 6

• Construct a cash budget and determine the timing and amount of any monthly cash needs
• Short-term projected statements of cash flows are related to cash budgets
• Short-term projected statements of cash flow are important to the entrepreneur
• Conversion period ratios are used to measure the average time it takes to convert certain current assets and current liability accounts into cash
• Operating cycle indicates the time it takes to purchase, produce, and sell the venture's products plus the time needed to collect receivables if sales are on credit
• Cash conversion cycle is the sum of the inventory-to-sale conversion period and the sales-to-cash conversion period less the purchase-to-payment conversion period
• MPC Conversion period performance
• Inventory-to-sale conversion period is the time it takes to turn inventory into sales.
• Inventory-to-sale conversion period = Inventory/(CGS/365)
• New average inventories = Inventory -to-sale conversion period * COGS/365
• Sale-to-cash conversion period = Receivables / (Net sales/365)
• Purchase-to-payment conversion period = Payable +Accrued liabilities / (COGS/365)
• Cash conversion cycle = Inventory-to-sale conversion period + Sale-to-cash conversion period - Purchase-to-payment conversion period