Answer :
Final answer:
The increase in the operating cycle at the Fried Green Tomatoes restaurant suggests a longer period between purchasing materials and selling goods, potentially leading to later payments to suppliers (i.e., an increased accounts payable period). Despite this, the shorter cash cycle could indicate a faster conversion of inventories into cash, thus permitting more timely payments to suppliers and partly offsetting the increased accounts payable period.
Explanation:
The Operating Cycle of a business refers to the average time it takes for a company's investment in inventory to turn into sales. The longer this cycle, the longer a business has its capital tied up without earning a return. On the other hand, the Cash Cycle represents the time it takes for a company to convert its investments in inventory and other resources into cash flows from sales.
If the Fried Green Tomatoes restaurant's operating cycle has increased from 97 days to 101.2 days, it means that the process by which the restaurant purchases, produces, and sells goods has lengthened. However, the decrease in the cash cycle by 2.7 days suggests more efficiency in converting its inventories and other inputs into cash.
These changes indirectly reveal that the accounts payable period—the average time it takes a company to pay its suppliers—has most likely increased. The longer operating cycle would suggest more time between purchasing materials and selling goods, which could lead to later payments to suppliers. Meanwhile, the shorter cash cycle could be due to earlier receipt of cash from customers, allowing for more timely payments to suppliers in spite of the longer operating cycle.
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