Ross et al.: Fundamentals
of Corporate Finance, Sixth
Edition, Alternate EditionVII. Short−Term Financial
Planning and Management- Short−Term Finance
and Planning
© The McGraw−Hill^691
Companies, 200219.1 The Operating and Cash Cycles Consider the following financial statement
information for the Route 66 Company:Calculate the operating and cash cycles.
19.2 Cash Balance for Greenwell Corporation The Greenwell Corporation has a
60-day average collection period and wishes to maintain a $160 million mini-
mum cash balance. Based on this and the information given in the following
cash budget, complete the cash budget. What conclusions do you draw?19.1 We first need the turnover ratios. Note that we use the average values for all bal-
ance sheet items and that we base the inventory and payables turnover measures
on cost of goods sold.
Inventory turnover $11,375/[(1,273 1,401)/2] 8.51 times
Receivables turnover $14,750/[(3,782 3,368)/2] 4.13 times
Payables turnover $11,375/[(1,795 2,025)/2] 5.96 times
We can now calculate the various periods:
Inventory period 365 days/8.51 times 42.89 days
Receivables period 365 days/4.13 times 88.38 days
Payables period 365 days/5.96 times 61.24 daysAnswers to Chapter Review and Self-Test Problems
GREENWELL CORPORATION
Cash Budget (in millions)
Q1 Q2 Q3 Q4
Beginning receivables $240
Sales 150 $165 $180 $135
Cash collections
Ending receivables
Total cash collections
Total cash disbursements 170 160 185 190
Net cash inflow
Beginning cash balance $ 45
Net cash inflow
Ending cash balance
Minimum cash balance
Cumulative surplus (deficit)Item Beginning Ending
Inventory $1,273 $1,401
Accounts receivable 3,782 3,368
Accounts payable 1,795 2,025
Net sales $14,750
Cost of goods sold 11,375Chapter Review and Self-Test Problems
664 PART SEVEN Short-Term Financial Planning and Management