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In: Finance

Please discuss the three stages of cash flow cycles and how investors and creditors see or...

Please discuss the three stages of cash flow cycles and how investors and creditors see or react to each step.

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Expert Solution

A cash flow cycle is very important as it shows how efficiently a company is converting its raw materials into finished prodcuts and ultimately getting the cash by selling it. The three stages are DIO (Days of inventory oustanding), DSO (Days of sales outstanding) and DPO (Days payable oustading).

DIO - It is the time in which th firm sells its finished products. The lesser is best as admired by investors and creditors.

DSO - It is time requires to collect cash from the credit sales. The leseer is better which means compoany is easily converting its credit sales. The investors and creditors likes this.

DPO - It is time in which a company makes the payment to its creditors. The creditors wants lesser DPO as it will improve their cash. The investor wnats a moderate policy in this as no more or less is good.

jeff jeffy answered 2 years ago
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