A list of businesses is presented below:
Business
1. Tree nursery
2. Fast food restaurant
3. Appliance store
4. Electric utility
5. Clothing store
Operating-Cycle Description
a. Very short—customers typically pay cash, and inventory is often held less than one day.
b. A few months—merchandise is typically on hand for several weeks, and some customers may use credit.
c. More than one year—merchandise may be in inventory for several months, and most customers will pay for purchases after one or two years.
d. Several years—a number of years are required to prepare merchandise for sale. Customers probably pay cash for most items.
e. A few months—customers pay monthly. The current assets used to provide customer services are consumed within a few months.
Required:
1. Match each business with a description of the operating cycle for that business.
2. How does a longer operating cycle (such as description c or d) change a company’s financing needs relative to a shorter operating cycle (such as description a)?