Page 387 - F1 Integrated Workbook STUDENT 2018

Working capital management

Working Capital Cycle

The Working Capital Cycle is the length of time between the entities’ outlay on raw
materials, wages and other expenditure and the inflow of cash from the sale of
goods.

Cash

Raw materials holding period X

Raw
Receivables Less: payables payment (X)
materials period

WIP holding period X

Finished goods holding period X

Receivables collection period X
Finished Work in
goods progress
Working Capital Cycle X

Factors affecting the length of the cycle depend on:

 liquidity versus profitability decisions

 management efficiency

 industry norms e.g. retail versus construction.

377