Question

1PUESTIONS (3) The first three questions are elated with the FALL CoMpany Compute the actual 2013 fnancial ratios listed abeve ith considering industry average a) If gou SPRING Company! Give reasons, compare with generally accepted accounting standard s, find net wor king capitol and discuss the Five C's of cre dit. Cassume a360-day year) creditor, could gou give short term loan to and the company b) Calcula te the operating cyck for evaluate the efficiency of the corporation. E (degor lendimek) eva luate the profitubility position of How could you that company:

a) If you were a creditor, could you give short term loan to SPRING company?
Give reasons, compare with generally accepted accounting standards, find net working capital and discuss the Five C's of credit.

b) Calculate the operating cycle for the company and evaluate the efficiency of the corporation.

c) How could you evaluate the profitability position of that company?

Answer 1

A. If I will be a creditor, i will give short term loan to SPRING COMPANY.

B.An Operating Cycle (OC) refers to the days required for a business to receive inventory, sell the inventory, and collect cash from the sale of the inventory. This cycle plays a major role in determining the efficiency of a business.

Importance of the Operating Cycle

The OC offers an insight into a company’s operating efficiency. A shorter cycle is preferred and indicates a more efficient and successful business. A shorter cycle indicates that a company is able to recover its inventory investment quickly and possesses enough cash to meet obligations. If a company’s OC is long, it can create cash flow problems.

A company can reduce its OC in two ways:

1. Speed up the sale of its inventory: If a company is able to quickly sell its inventory, the OC should decrease.
2. Reduce the time needed to collect receivables: If a company is able to quickly collect credit sales more quickly, the OC would decrease.