[HELP- FSA-Inventory] Level 1 Question! decrease, increase, advise, credit, impact

Mechanic

If pay inventory by credit, will it impact operating cycle and cash cycle? (increase or decrease)

Please advise. Thanks a lot!

Valores

同学，你好！
如果是buy inventory by credit的话，首先inventory要增加，days of inventory on hand增加。同时，payables也要增加，mumber of days of payables也要增加。
operating cycle = days sales outstanding + days of inventory on hand，所以要增加。
cash conversion cycle = days sales outstangding + days of inventory on hand - number of days of payables
如果要判断cash conversion cycle是增加还是减少的话，就要看days of inventory on hand 和 number of days of payables谁增加的多，如果是days of inventory on hand 增加的多的话，那cash conversion cycle就会增加，如果是number of days of payables增加的多的话，那cash conversion cycle就会减少。

dvilayphet

Thank you very much!

Will that be the same day increase in "days of inventory on hand" and "number of days of payable" if only considering this issue (pay by credit)?

If so, does that mean cash conversion cycle will remain the same? (increase in days of inventory on hands offsets the increase in days of payable)

Andreas42

同学，你好！
我们可以从公式出发
payables turnover = purchases / average payables
inventory turnover = COGS / average inventory
所以他们涉及了4个变量的变化，这个具体怎么变化要依具体题目而定
如果，如你说的the same day increase in "days of inventory on hand" and "number of days of payable" if only considering this issue
那 cash conversion cycle是保持不变的，因为days of inventory on hand增加的量和number of days of payable减少的量是相同的，相互抵消不影响最后结果。