Short-Term and Long-Term Financial Decisions: Cash Conversion Cycle

Short-Term and Long-Term Financial Decisions
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Short-Term and Long-Term Financial Decisions
Working capital refers to the cash resources a business requires to sustain operations and pay its creditors in the short-term, usually within a time frame of 12-months or less. It is necessary for a business to have sufficient funds to meet its daily short-term financial needs. Working capital typically constitutes the revenue collected from the sale of goods and services. Therefore, it comprises trade receivables, inventories, and trade payables. On the other hand, the cash conversion cycle denotes the time held up in working capital or the amount of time it takes a company to sell its stock or services, receives revenue, and settle accounts payable. Working capital and cash conversion cycle are interrelated in that, to keep the business running, the busi...