cash conversion cycle

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Related to cash conversion cycle: Operating cycle, Days Sales Outstanding

Cash conversion cycle

The length of time between a firm's purchase of inventory and the receipt of cash from accounts receivable.

Cash Conversion Cycle

The time between an expenditure of money to make a product and the collection of accounts receivable from the sale of that product. Obviously, a shorter cash conversion cycle is preferable. A longer cash conversion cycle may indicate a current or potential problem with cash flow.

cash conversion cycle

The time required for a business to turn purchases into cash receipts from customers. A short cycle allows a business to quickly acquire cash that can be used for additional purchases or debt repayment.
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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.