Inventory period and operating cycle Essay

Age of entry leave behind show the number of years that account of COSCO is being held before they are sold. Increasing or decreasing the said(prenominal) must be a channelize by the objective of maintaining a well behaved operative chapiter condition. COSCO Wholesale has fund stay of 27 eld. Before tribute could be make whether its inventory st full point should be increased, said inventory period must be compared with the payment monetary value with suppliers.If the companys payment foothold (Bernstein, 1993) to supplier is 30 days them the age of inventory of 27 days is a good sign that the company is fashioning sale of inventory efficiently, which means that it green goddess sell faster than the next cadence the company orders and pays for these goods. For COSCO to maintain its 27 days inventory period, it must also make this up with collection period since high sales volume is normally associated with chronic collection period.Increasing sales on credit with longer collection will come down inventory period and the two will sum up to in operation(p) cycle (Meigs and Meigs, 1995). If the resulting run cycle shut up allows a good and manageable working capital situation, then increasing sales on credit must be done up to such point, other mismanaged working could turn the company futile to meet presently maturing obligations. Operating circle COSCOS operating cycle is 30 says which consists of 27 days inventory period and 3 days collection period.To pose whether recommendations should be made whether the cycle could be increased or decreased should be tied up on it working capital situation. If its present working capital situation allows the company to meet it currently maturing obligations then its operating cycle is only when right. As discussed earlier, the strategy on operating cycle is affected by decisions made on age of inventory and constitution on making sales on credit.One could not just decrease operating cyc le without basis exchangeable by decreasing age of inventory by underinvestment as this could mean not satisfying the demand for companys products for the sake of shorter age of inventory and thence shorter operating cycle. The companys form _or_ system of government on sales on credit must be sufficient sufficient to meet realistic targets in monetary value of sales revenues and working capital requirements (Brigham and Houston, 2002).