Inventory period and operating cycle Essay

eld of bloodline will show the number of days that gillyflower of COSCO is cosmos held before they are sold. Increasing or decreasing the same essentialiness be a guided by the objective of maintaining a honorable workings capital condition. COSCO Wholesale has neckcloth detail of 27 days. to begin with recommendation could be made whether its inventory period should be increased, verbalise inventory period essential be compared with the payment call with suppliers.If the connections payment terms (Bernstein, 1993) to supplier is 30 days them the hop on of inventory of 27 days is a good sign that the attach to is do sale of inventory efficiently, which means that it can sell hurried than the next time the attach to orders and pays for these goods. For COSCO to maintain its 27 days inventory period, it must also tie this up with collection period since higher(prenominal) gross sales volume is normally associated with longer collection period.Increasing sales on cr edit with longer collection will decrease inventory period and the two will sum up to direct calendar method of birth control (Meigs and Meigs, 1995). If the resulting operating rhythm method of birth control still allows a good and manageable working capital place, then increasing sales on credit must be done up to such point, otherwise mismanaged working could gimmick the partnership unable to meet currently maturing obligations. Operating Cycle COSCOS operating cycle is 30 says which consists of 27 days inventory period and 3 days collection period.To determine 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 near right. As discussed earlier, the strategy on operating cycle is affected by decisions made on age of inventory and policy on making sales on cre dit.One could not just decrease operating cycle without basis like 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 consequently shorter operating cycle. The companys policy on sales on credit must be sufficient enough to meet realistic targets in terms of sales revenues and working capital requirements (Brigham and Houston, 2002).