Consider the following financial statement information for the Windbag Balloon Corporation:

            Item                                      Beginning of 2016      Ending of 2016

            Inventory                               $4,925                         $5,150

            Accounts receivable                $3,019                         $3,380

            Accounts payable                    $7,516                         $7,952

            Net sales                                $47,115

            Cost of goods sold                    $22,893

(1) Calculate the operating and cash cycles. How do you interpret your answer?

(Use the average Inventory, A/R and A/P for 2016 to calculate the cycles)

(2) In general, will shortening cash cycle increase a firm’s profitability? Why?