Page 136 - Corporate Finance PDF Final new link

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136 Corporate Finance BRILLIANT’S

Total Credit Purchase
# Credit purchase per day =
365 or 360
Note: ZmoQ>…
1. If only closing balance of any item is 1. `{X {H$gr Am`Q>_ H$m {g\©$ ŠbmoqOJ ~¡b|g CnbãY
available, then the closing balance will be h¡ Vmo ŠbmoqOJ ~¡b|g H$mo Am¡gV ê$n go {b`m OmEJm&
taken as an average.
2. In the absence of any information, total 2. {H$gr ^r OmZH$mar Ho$ Z hmoZo na Q>moQ>b nM}g Am¡a
purchases and total sales are treated as Q>moQ>b goëg H$mo H«o${S>Q> _mZm OmVm h¡&
credit purchases and credit sales
respectively
Calculation of Number of Operating Am°naoqQ>J gm`H$ëg H$s g§»`m H$s JUZm
Cycles
The number of operating cycles in a period {H$gr Ad{Y _| Am°naoqQ>J gm`H$ëg H$s g§»`m df©
is determined by dividing the number of days Ho$ {XZm| H$s g§»`m (AWm©V² 365 `m 360) H$mo Am°naoqQ>J
in a year (i.e., 365 or 360) by the operating cycle gm`H$b nr[a`S> go ^mJ XoH$a kmV H$aVo h¢Ÿ&
period.

365 or 360
No. of Operating Cycles =
Operating Cycles Period
Total Operating Expenses
Working Capital Required =
No. of Operating Cycles

Cash conversion cycle H¡$e H§$de©Z gm`H$b
The cash conversion cycle is the period H¡$e H§$de©Z gm`H$b EH$ H§$nZr Ho$ {bE g§gmYZm|
required for a company to convert resources to H$mo H¡$e âbmo _| n[ad{V©V H$aZo Ho$ {bE H§$nZr Ho$ {bE
cash flow. Amdí`H$ {XZm| H$m g‘¶ h¡&

This measure calculates the time period `h Cnm` g_` Ad{Y H$s JUZm H$aVm h¡ {Og
during which each rupee of input is committed Ad{Y _| àË`oH$ BZnwQ> én`m AH$mC§Q²>g [agrdo~b à{H«$`m
to production and sales process before it is
converted to cash through collection of the Ûmam H¡$e _| n[ad{V©V hmoZo Ho$ nhbo CËnmXZ VWm {dH«$`
accounts receivable. à{H«$`m Ho$ {bE à{V~Õ hmoVm h¡&
Note: The shorter the cash conversion ZmoQ>… H¡$e H§$de©Z gm`H$b {OVZm N>moQ>m hmoVm h¡ EH$
cycle, the better it is for a business. ì`mnma Ho$ {bE CVZm hr AÀN>m hmoVm h¡&
Calculating the Cash Conversion Cycle H¡$e H§$de©Z gm¶H$b H$s JUZm
The cash conversion cycle calculation uses H¡$e H§$de©Z, gm`H$b JUZm Am°naoqQ>J gm`H$b
elements of the operating cycle equation, BŠdoeZ Ho$ VËdm| H$m Cn`moJ H$aVm h¡ {Og_| am° _Q>o[a`b,
including raw materials, work-in-process, dH©$-BZ-àmogog, {\${ZíS> JwS²>g VWm {~ëg [agrdo~b Ho$
finished goods and bills receivable, in addition A{V[aŠV {XZ Ho$ noE~b AmCQ>ñQ>¢qS>J gpå_{bV h¢& Cg