Question

Peters Ltd had the following Creditors payment period ratios for 2022 and 2021

2022: 60 days
2021: 45 days
Assuming that the other financial ratios used to calculate the Operating and Working capital cycles remains constant in 2022 and 2021, the increase in Creditors payment period would have had the following effects on Peters Ltd's Operating and Working Capital Cycles in 2022:
Operating Cycle is (Decrease/Increase/No effect) and Working Capital Cycle (Decrease/Increase/No effect)

Answer 1

The increase in the Creditors payment period would have a positive effect on Peters Ltd.'s Operating and Working Capital Cycles in 2022.

Step-by-step explanation:

The increase in the Creditors payment period would have a positive effect on Peters Ltd.'s Operating Cycle in 2022. The Operating Cycle is the time it takes for a company to purchase inventory, sell it, and receive payment. When the Creditors payment period increases, it means the company has more time to pay its creditors, resulting in a longer Operating Cycle.

On the other hand, the increase in the Creditors payment period would have a positive effect on Peters Ltd.'s Working Capital Cycle in 2022. The Working Capital Cycle is the time it takes for a company to convert its working capital into cash. When the Creditors payment period increases, it means the company has more time to pay its creditors, which can increase the company's cash available for other operations.