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    BUS 4404 Learning Journal Unit 2

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    Cherry Htun
    The document discusses the cash realization cycle, which measures the time between investing in inventory and receiving payment from customers. It describes how inventory turnover and accounts receivable collection impact the cash cycle. Managing these factors effectively can improve a business's cash flow and liquidity.

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    BUS 4404 Learning Journal Unit 2

    Uploaded by

    Cherry Htun
    6 views4 pages
    The document discusses the cash realization cycle, which measures the time between investing in inventory and receiving payment from customers. It describes how inventory turnover and accounts receivable collection impact the cash cycle. Managing these factors effectively can improve a business's cash flow and liquidity.

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    © © All Rights Reserved

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    The document discusses the cash realization cycle, which measures the time between investing in inventory and receiving payment from customers. It describes how inventory turnover and accounts receivable collection impact the cash cycle. Managing these factors effectively can improve a business's cash flow and liquidity.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    6 views4 pages

    BUS 4404 Learning Journal Unit 2

    Uploaded by

    Cherry Htun
    The document discusses the cash realization cycle, which measures the time between investing in inventory and receiving payment from customers. It describes how inventory turnover and accounts receivable collection impact the cash cycle. Managing these factors effectively can improve a business's cash flow and liquidity.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 4

    BUS 4404 – Principle of Finance 2

    University of the People

    Learning Journal Unit 2


    The cash realization cycle, also known as the cash conversion cycle (CCC), is a critical

    metric for businesses to manage their working capital and maintain liquidity. This cycle

    measures the time taken between the initial investment in inventory and receiving payment from

    customers for that inventory. It effectively captures the duration during which a business's funds

    are tied up in inventory and accounts receivable before turning into cash.

    Inventory turnover and accounts receivable collection are pivotal components of the cash

    realization cycle. Inventory turnover refers to the rate at which a company's inventory is sold and

    replaced over a period. A higher inventory turnover rate indicates efficient management of

    inventory, meaning that the company is effective in converting its inventory into sales. Rapid

    inventory turnover reduces the cash cycle duration, freeing up cash more quickly for other

    business needs and reducing the holding costs associated with excess inventory (Walther &

    Skousen, 2009).

    Receivable collection plays a complementary role by influencing the speed at which cash is

    recouped after sales are made. The receivables collection period measures the time taken to

    collect cash from customers after a sale has been made. Shorter collection periods are preferable

    as they indicate quicker cash inflow, enhancing a business's liquidity position. Efficient

    receivables management ensures that businesses can reinvest the cash into operations, such as

    purchasing more inventory or covering other operational expenses, without needing to rely

    excessively on external financing (Morrow, 2012).


    The integration of effective inventory management and swift receivable collection is

    essential for minimizing the cash realization cycle. As businesses accelerate inventory turnover

    and shorten the receivable collection period, they can significantly improve their cash flow. This

    is crucial for maintaining liquidity and ensuring the company has enough cash on hand to meet

    its short-term obligations and invest in growth opportunities. Managing these components

    effectively allows businesses to operate more efficiently, reduce the cost of capital, and

    potentially avoid financial distress (Volker, 2012).


    References

    Walther, L.M. & Skousen, C.J. (2009). Using Account Information. BookBoon: Ventus

    Publishing ApS.

    Morrow, R. (2012). Working Capital Management: A Must for Any Startup. Retrieved from

    Volker, M.C. (2012). Making the Business Case. BookBoon: Ventus Publishing ApS.

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