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  • Previously, we defined Cash Conversion Cycle as the period between investments in and recovery

  • from the operating cycle of the company.

  • Here, we go deeper in description of Cash Conversion Cycle

  • and explanation how its length differs from the length of the Operating Cycle.

  • Operating cycle encompasses following stages:

  • Procurement

  • Payment

  • Processing

  • Sale

  • and Collection

  • Note, that there is no cash activity at the procurement stage:

  • company receives raw materials, but does not pay on spot experiencing the delay in payment.

  • Therefore, the payment stage outstands slightly forward in time.

  • That gap explains the nature of Accounts Payable.

  • After the purchasing, materials move to the processing,

  • finished goods passage to the warehouse and get delivered to clients.

  • We can see that the company carries inventory in different forms from Procurement until

  • Sales stage.

  • Finally, the gap between delivery to the client (we call it Sales) and Money Collection is

  • a background for Accounts Receivable.

  • We can see that operating cycle starts at the Procurement stage and ends at the Sales.

  • While Cash Conversion Cycle starts at Payment

  • and ends at Collection.

  • Both time-measured, those cycles can differ from each other.

  • The practical way to calculate the Cash Conversion Cycle is to identify each of three components:

  • take inventory turnover period (here we call it Days Inventory in Stock)

  • without accounts payable turnover period (we call it Days of Payables Outstanding)

  • plus accounts payable turnover period (in our caseDays of Sales Outstanding).

  • Please, choose to proceed to calculation of the certain cash conversion cycle component.

Previously, we defined Cash Conversion Cycle as the period between investments in and recovery

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B1 中級

現金轉換週期計算 (Cash Conversion Cycle Calculation)

  • 63 6
    Xuhuan He 發佈於 2021 年 01 月 14 日
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