Ch 16: Assignment-Working Capital Policy and Short Assignment-Term Financing Proper management of a firm's working capital is vital and chailenging due to the between a firm's cash inflows and outflows A firm's customer's cash from the credit sale of the firm's finished good. It can be broken down into several elements including begins with purchase of the firm's raw materials and ends with collection of the the amount of time needed to obtain and transform the firm's inventories into saleable products and then sell them to the firm's customers, which is called and the time peris that begins with the sale of the firm's product to a credit customer and ends with the collection of the customer's cash, which is the Notice that, in general, the first period begins with the creation of an account payable, while the second begins with the creation of an account receivable. The length of time that the company is able to postpone payment for its purchase of its raw materials via an account payable is called important component of a firm's operating cycle. credit This is the third From the perspective of the purchaser, the account payable is a spontaneous source of financing, receivable is a spontaneous investment made in its customer. In general, a firm is required to pay its account while the account payable, a cash outflow, before it receives the cash inflow from the collection of its account receivable. The firm, therefore, requires a interval beginning with the payment of the account payable and ending with the collection of the account receivable, is called the refers to the interval beginning with the payment of the account payable and The ending cash conversion cycle-_ with the collection of the account receivable. The relationship between a firm's payables deferral period (P), receivables conversion period (R), and inventory conversion period (1) is best represented mathematically as: esc 4