Given below is the ‘Cash Conversion Cycle’.(i) Identify the type of business to which the above cash conversion cycle belongs. (ii) Draw a ‘Cash Conversion Cycle’ for another type of business other than that identified in (i) above.
Show Hint
Manufacturing businesses deal with inventory; service businesses deal with time and expertise. Their cash cycles differ accordingly.
(i) Type of Business:
The aforementioned cash conversion cycle pertains to a Manufacturing Business.
This classification is derived from the inclusion of the following stages in the cycle:
Cash → Raw Materials → Work in Progress → Finished Goods → Debtors → Cash,
which represent the customary phases of production and sale within a manufacturing context.
(ii) Cash Conversion Cycle for a Service Business:
A Service Business lacks physical inventory. Its typical cycle comprises:
Cash → Services Provided → Debtors (if service is rendered on credit) → Cash.
