Shortening the cash conversion cycle
also leads to improved profitability.
Moss and Stine (1993) asserted that the analysis of cash conversion cycle
give more explicit insights for efficient management of firm's short term assets and liabilities that will assure about the proper level of liquidity needs.
Exhibit 1 Cash Conversion Cycle
Formula CCC = Days Inventory Outstanding + Days Receivables Outstanding - Days Payables Outstanding This equation can be expanded as follows: CCC = [Average Inventory / (Cost of Goods Sold / 365)] + [Average Accounts Receivable / (Net Sales / 365)] - [Average Accounts Payable / (Cost of Goods Sold / 365)]
The traditional cash conversion cycle
is comprised of receivables, inventory, and payables.
The study outlined in this paper contributes to the literature on cash management in small firms in three ways: 1) by analyzing how cash conversion cycle
impacts not only firm returns but also liquidity and capital requirements; 2) by analyzing how firm performance and liquidity levels in turn influence cash conversion cycle
; and 3) by analyzing how the relationships between cash conversion cycle
and firm performance, liquidity and capital requirements change over time.
Use the cash conversion cycle
to evaluate the firm's working capital policy.
In the study of Uyar (2009) he examined industry benchmarks for cash conversion cycle
(CCC) of merchandising and manufacturing companies and found that merchandising industry has shorter CCC than manufacturing industries.
In fact, integrating the physical and financial supply chains is a key step to success for best-in-class performers--or companies with cash conversion cycles
20 days shorter than the industry average--according to the Aberdeen Group's 2008 State of the Market in Supply Chain Finance.
However, the company has a long and successful track record of cost savings, a very fast cash conversion cycle
with little variability (30-34 days), and strong brand leadership which has allowed it a solid measure of pricing flexibility.
7 million in FY 2009, reduce our cash conversion cycle
from 45 days in FY 2008 to 20 days in FY 2009, and expand the number of stores from 20 in FY 2008 to 150 in FY 2009.
The analysis includes various components of working capital management such as days inventory outstanding, days payable outstanding, days sales outstanding and cash conversion cycle
There is a significant relation between cash conversion cycle
and value of the listed companies in Tehran stock exchange.