Question

Company	Inventory Conversion Period, days	Average Collection Period, days	Payables Deferral Period, days	Cash Conversion Cycle, days
Adidas	112	27	57	82
Puma	107	18	49
Nike	128	20	43	105
Under Armor	89	24	21

1)calculate CCC for Puma and UA.

2)pick any 1 company of the 4:

how its operational liquidity stands versus competitors (other 3 firms)?

how can this company improve its liquidity? What are possible risks/limitations to your proposed changes?

Answer 1

1) calculate CCC for Puma and UA:

PUMA: Inventory conversion period + average collection period - payables Deferral Period

= 107+ 18 - 49

= 76

Under Armor:

= 89 + 24 - 21

= 92

2) Nike is the company i have picked,

its opertional liquidity that is the number of days cash is tied up in the inventory, the lesser the investory conversion period the better it is, in comaprison to the creditors the inventory conversion period is higher which is bad. the average collection period, is the number of days, you receive for the recievables to be converted into cash, here the receivebles collection period is shorter in comparison to the competitors which is good. Payables deferral period, is the attractive payment terms received from creditors, here again Puma recieves a perios which is less in comparison to its competitors. overall Puma's operational liquidity is poor in comapriosn to its competitors.

Nike, can improve its operational liquidity, by converting its inventory faster. inventory can be converted faster into cash by aggressive sales techniques and collecting receivabes quickly by sending them reminders for making quick payments on the dues,and negotiating better payment policies form the creditors.

the limitations of aggressive sales techniques can be high cost involved in advertising , by asking for speedy recovery of receivables it maybe possible that people might switch to other firms providing attractive payment terms. the business stands the risk of losing it's customers. negotiating better payment terms from the creditors might also be difficult as different suppliers have their own policies of recovery of dues.