Here are a few questions. They are asking about the company of \"McDonald\'s\" P

Question

Here are a few questions. They are asking about the company of "McDonald's" Please search and answer every question below correctly. Bad answers will not get stars, good answers will be awarded 5 stars. Please only answer these questions if you believe your answers are true and correct. Thank you.   

1. Which method of reporting cash flows from operations does the McDonald's company use?   

2. Compare the net cash provided/used from operations to the net income amount on the income statement for all of the years presented in the annual report. Are these two numbers trending in the same direction? What is the largest adjustment item in the cash flows from operations?   

3. What has created the largest inflow and outflow of cash for investing activities?   

4. Did investing activities provide or use cash for each of the years presented?   

5. Did the financing activities provide or use cash in each of the years presented?   

6. What are the stock repurchase and dividend trends of your chosen company?   

7. Does the cash provided by operations cover the investing activities? Financing activities?  

8. What is the cash conversion cycle for your company in each of the years presented? Please interpret the cycle for each year and its current trend.

Explanation / Answer

8-ANS-

Definition of 'Cash Conversion Cycle - CCC'

A metric that expresses the length of time, in days, that it takes for a company to convert resource inputs into cash flows. The cash conversion cycle attempts to measure the amount of time each net input dollar is tied up in the production and sales process before it is converted into cash through sales to customers. This metric looks at the amount of time needed to sell inventory, the amount of time needed to collect receivables and the length of time the company is afforded to pay its bills without incurring penalties.

Also known as "cash cycle."

Calculated as:

Cash Conversion Cycle (CCC)

Where:

DIO represents days inventory outstanding

DSO represents days sales outstanding

DPO represents days payable outstanding

Cash Conversion Cycle - CCC'

Usually a company acquires inventory on credit, which results in accounts payable. A company can also sell products on credit, which results in accounts receivable. Cash, therefore, is not involved until the company pays the accounts payable and collects accounts receivable. So the cash conversion cycle measures the time between outlay of cash and cash recovery.

This cycle is extremely important for retailers and similar businesses. This measure illustrates how quickly a company can convert its products into cash through sales. The shorter the cycle, the less time capital is tied up in the business process, and thus the better for the company's bottom line.

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