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Shareholder value maximization means maximizing the wealth of a company by increasing the
prices of stocks. The stock wealth of the person investing increases when prices in stock
increase. An acquiring company CEO may acquire debts which may put the company at risk of
being bankrupt. A lot of debts are likely to increase share value since the company is most likely
to increase value after acquiring a company. However, it can bring a company down. Using debts
to finance a company causes rise to the ratio of debt to equity in a company. Without shareholder
value, it can be considered as negative since that means that the company is not making any
money. Acquiring company CEOs are most likely to take loans for them to run a company even
though the shareholders may not agree. This may decrease shareholder value.
Module 12: Short -Term Financial Management
Calculating the Cash Conversion Cycle for Adrianna’s Apples and Pies Bakery
Learning Objectives:



12.1: Examine working capital management approaches and policies.
12.2: Consider the cash conversion cycle and the impact of managing inventory, accounts
receivable, and accounts payable.
12.3: Evaluate sources of, and requirements for, obtaining short-term debt.
Adrianna’s Apples and Pies is a large bakery. It mainly bakes elaborate cakes for weddings and similar
functions. The company buys its raw materials every seven days and pays cash on delivery. The company
usually sells all its stock within seven days. Its customers are required to pay for the cakes within 15 days
of their order.
1.
2.
3.
4.
Calculate the firm’s cash conversion cycle. (20 pts)
Is its CCC positive or negative? (10 pts)
Can you suggest how Adrianna’s Apples and Pies could improve its CCC? (30 pts)
Does the business need short-term debt to cover its day-to-day operations? If so, what sort of
short-term debt do you recommend, and why? (40 pts)

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