Bec #3 Cash Conversion Cycle

Front 1

Cash conversion cycle

Back 1

!----------------!---------------!-----------!
Payable inventory receivable collect
= Inventory conversion period + Receivables conversion period – Payables conversion period

Front 2

Cash conversion cycle

Back 2

= inventory conversion period (low)
+Receivable collection period (low)
- payables deferral period (high - delay)

Front 3

inventory conversion period

Back 3

= Average inventory / avg. cost of sales per day

Front 4

Receivable collection period

Back 4

= Days sales outstanding = Avg. Res/ Avg. sales per day

Front 5

payables deferral period

Back 5

= Avg paybles / Avg. purchases per day

Front 6

Days sales outstanding DSO (Receivable collection period)?

Back 6

DSO = (AVG Receivables/Sales)*Days.OR
Receivable collection period= Avg. Res/ Avg. sales per day

Front 7

DSO Days sales outstanding?
used for

Back 7

360/ A/R Turnover
or
AVG. A/R
------------------------
credit sale / 360
or
Avg A/R / Avg sales per day

The avg. # of days req. to collect A/R

Front 8

CCC (in days) = Inventory conversion period + Receivables conversion period – Payables conversion period

Back 8

"Payables conversion period" (or "Days payables outstanding") refers to the time "accounts payable" is held (from inventory delivery until cash disbursal).
"Inventory conversion period" (or "Days inventory outstanding") refers to the time inventory is held (beginning at the same moment as the "payables conversion period," i.e. the inventory delivery, and ending with its sale for a receivable).
"Receivables conversion period" (or "Days sales outstanding") refers to how long inventory is held (from the end of the "inventory conversion period," i.e. the sale of inventory, until cash collection).

Front 9

Payables conversion period =

Back 9

(Avg. Accounts Payable/[+∆inventory +COGS])*365 = days holding accounts payable until it's all paid in cash (i.e. time before inventory growth hits cash)
= Avg payables/ Avg purchase per day

Front 10

Inventory conversion period =
OR Inv. T/Over in Days

Back 10

AVG Inventory
________________
COGS /365
OR
(Avg. Inventory/COGS)*365 = days holding inventory until it's all sold
The avg. # of days req. to sell inventory. OR avg days sales in Inventory

Front 11

Receivables conversion period =

Back 11

Avg. Accounts Rec
________________
net Sales/ 365
OR
365/ A/R TOver
= days holding receivables until the last cash collection

Front 12

Inventory Turnover
is indicatior of __________
The higher the T/Over ->
It would assist w/identifying______________

Back 12

COGoodsS/AVG Inventory
How quiclkly inv. is sold is an indicator of Co's performance.
The higher the T/Over -> the better the performance
It would assist w/identifying slow-moving & obsolete inv.
Avg Inv = (Beg + End)/2
End Inv= Beg + Purchases - GOGS

Front 13

Receivables Turnover Ratio =
is indicatior of ____________
Faster T/Over gives credibility to the ______________
Low T/Over -______________

High T/Over -______________

Back 13

Net sales/ Average net receivables

Quality of A/R and the success of the firm in collecting outstanding A/R.
Faster T/Over gives credibility to the Current and Acid-Test ratios.
Low T/Over -
Collection problems
High T/Over -
Collections are good

Front 14

(Days Sales Outstanding) Average Collection Period =

Back 14

365 / Receivables Turnover Ratio
= Avg AR /credit sales/ 360

Front 15

days sales in Inventory
OR Avg age of inventory =

Back 15

360 / inventory turnover,
Inventory T/over=COGS/ AVG inventory
= (Avg inv. / COGS) * 360 = AVG Inv. / sales cost per day