Question

please focuse in limit of words (200-600 words)?

Question 5:

Cash is an important liquid asset of any company. Cash is money in the physical form of currency, such as banknotes and coins. In bookkeeping and finance, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-immediately as in the case of money market accounts. Cash is seen either as a reserve for payments, in case of a structural or incidental negative cash flow or as a way to avoid a downturn on financial market. As a finance manager of the Al-Madina company where spare parts of car are manufactured. Keeping in the mind about cash transaction, how can you guide your staff members about importance of cash (5 points) and lighting upon cash conversion cycle in detail based on your company.

(10 Marks, Word Limit 200-600)

Answer 1

Cash Is King for Business

“Cash is king” is an age-old saying often used to explain the failure of both businesses and consumer households. Without the proper amount of cash on hand, both of these entities can run into major trouble, and even be forced into bankruptcy.Many business analysts state poor cash management practices as the number one reason why businesses go bankrupt.Cash is the most liquid asset and can be used immediately to perform economic actions like buying, selling, or paying debt, and meeting immediate wants and needs.

In management accounting, the cash conversion cycle (CCC) measures how long a firm will be deprived of cash if it increases its investment in resources in order to expand customer sales.It is thus a measure of the liquidity risk entailed by growth. However, shortening the CCC creates its own risks. While a firm could even achieve a negative CCC by collecting from customers before paying suppliers, a policy of strict collections and lax payments is not always sustainable.The term “cash conversion cycle” refers to the timespan between a firm’s disbursing and collecting cash.Since a retailer’s operations consist of buying and selling inventory, the equation models the time between (1) disbursing cash to satisfy the accounts payable created by purchase of inventory, and (2) collecting cash to satisfy the accounts receivable generated by that sale.

The Cash Conversion Cycle calculation equations are as follows:

Cash Conversion Cycle = Days Inventory Outstanding + Days Sales Outstanding - Days Payable Outstanding

Where :

Days Inventory Outstanding	Inventory	x Days
Cost of Goods Sold
Days Sales Outstanding	Accounts Receivable	x Days
Revenue
Days payable Outstanding	Accounts Payable	x Days
Cost of Goods Sold

For a business, its availability is essential to not only avoid the possibility of bankruptcy, but also to take advantage of various expansion and growth opportunities. As a consumer, cash represents one of the safest investments possible while preparing you for uncertain times.