CashConversion Cycle and the Net Working Capital
CashConversion Cycle and the Net Working Capital of Apple Incorporated
Contemporarybusiness executives are tasked with the mandate of developingprocedures and strategies that enhance the operational legitimacy oforganizations. These procedures maintain and improve the financialstrength and the competitive advantage of Apple Inc. (Nicolás, &J. Sanz, 2014). It also guides on evaluating the net working capital(NWC) as well as monitoring the cash conversion circle (CCC).Therefore, management should have a better understanding of bothworking capital and the cash conversion circle on how they integrate. The working capital explains the short-term resources and the debtof the company this is obtained by getting the current assets anddeducting the current liabilities (Kieschnick, Laplante, &Moussawi, 2013).
Theability to understand this concept helps Apple management to maintainshort-term liquidity levels. This can be intertwined with the cashconversion circle, which monitors cash collection and recoveryefforts. The cash conversion circle has an impact on Apple’stransactions, operations and the liquidity strength. For example, arelaxed CCC policy may face insolvency especially when customersdefault payments. This will also affect the company’s workingcapital where it will record very low levels. The ripple effect willbe felt where the business fails to meet its short-term obligationsand finally, making it difficult to pool resources used in long-terminvestments such has buying property.
Theconcept behind the relationship between the working capital and cashconversion circle allows Apple to operate effectively. Money isneeded to run operations, finance projects, and enhance sales thateventually improve the competitive advantage of the organization. Theability of management to collect this cash will enhance service inshort-run, such as paying bills and also earn future revenue. Thus,the cash conversion concept guides on cash collection while workingcapital gauges the liquidity of the company. The significance ofunderstanding working capital helps executive to invest in rewardingbusinesses and also run productive activities. Finally, thetheoretical concept of cash conversion circle cushions a company fromfiscal challenges and drifting into financial insolvency.
Kieschnick,R., Laplante, M., & Moussawi, R. (2013). Working capitalmanagement and shareholders’ wealth. Review of Finance, 17(5),1827-1852.
NicolásMarín Ximénez, J., & J. Sanz, L. (2014). Financialdecision-making in a high-growth company: the case of Appleincorporated. Management Decision, 52(9), 1591-1610.