It has been argued that if one could perfectly synchronize a firm's cash inflows and outflows, short-term financial planning would be unnecessary. Do you agree? What actions can the firm's financial decision-makers take to reduce the degree of asynchronization? Why should this be of concern?

This question asks the student to note the impact of the differential timing of the cash and operating cycles. We sometimes explain this to students in terms of a simple analogy. If we could arrange our finances so that our bills all came due on the day after we got paid, our chequing account balance could be kept at a low level throughout the month. The fact that bills come due throughout the month, however, necessitates the maintenance of a greater level of spendable funds. The opportunity cost of this balance can be substantial for a firm with millions of dollars of inflows and outflows on a monthly basis. Financial decision-makers can influence the lengths of the cash and operating cycles by adjusting credit terms and making payments at different points as well as, from a longer-term perspective, investing in equipment that utilizes different production technologies (and, therefore, different production times).