The cash conversion cycle which is a very important indicator measures how efficient a company manages its working capital. This indicator clearly points the effect of a company business operation from the cash flow point of view. Basically, it is an excellent systematic financial system that includes the function which will fully describe the important parts of daily operation behavior of a company.
According to this study, the cash conversion cycle can completely show the skeleton of working capital management and its own business operation character of a company. By using the cash conversion cycle as a base, the model of working capital management cycle is created from a system dynamics method. A close-tight and highly dependent relationship between revenue and profit growth rate with the cash conversion cycle is illustrated in this model by inputting some criteria. The illustration shows:
1.The cash conversion cycle will affect a company¡¦s profitability.
2.The cash conversion cycle will affect Cash flow shortage risk.
3.The cash conversion cycle focuses on the period of time between ¡§payment and receiving¡¨. When a company¡¦s revenue increases substantially but profit is not increased accordingly, the length of time between payments and receiving shows a gap is created by increasing cash payments on production but less increasing or decreasing cash receiving on sales. This gap will gradually cause cash outflow greater than cash inflow. Although the account indicates that the company is profitable, the company business operation will still suffer from the cash shortage eventually.
Of course, the company¡¦s strong refinancing ability may solve this problem. However, if the company has problem of refinancing and increasing its operation capital, the raising cash outflow from the gap will trigger off a counterintuitive of ¡§bankruptcy from the technical insolvency ¡§.
| Identifer | oai:union.ndltd.org:NSYSU/oai:NSYSU:etd-0830104-215827 |
| Date | 30 August 2004 |
| Creators | Ko, Kuang-Ting |
| Contributors | Lo,Henry Y., David Shyu, Yi-Min Tu, Jen-Jsung Huang |
| Publisher | NSYSU |
| Source Sets | NSYSU Electronic Thesis and Dissertation Archive |
| Language | Cholon |
| Detected Language | English |
| Type | text |
| Format | application/pdf |
| Source | http://etd.lib.nsysu.edu.tw/ETD-db/ETD-search/view_etd?URN=etd-0830104-215827 |
| Rights | unrestricted, Copyright information available at source archive |
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