Consider the following financial statement information for the Windbag Balloon Corporation:
Item Beginning of 2016 Ending of 2016
Inventory $4,925 $5,150
Accounts receivable $3,019 $3,380
Accounts payable $7,516 $7,952
Net sales $47,115
Cost of goods sold $22,893
(1) Calculate the operating and cash cycles. How do you interpret your answer?
(Use the average Inventory, A/R and A/P for 2016 to calculate the cycles)
(2) In general, will shortening cash cycle increase a firm’s profitability? Why?