Cash Conversion Cycle: An Illustration Besides Using The Exhaustion Method.

Published by slang April 14th, 2006 in Cash Conversion Cycle

GO TO MAIN PAGE FOR ALL TOPICS COVERED UNDER CASH CONVERSION CYCLE/CASH OPERATING CYCLE

There are few ways of computing the components of the Cash Conversion Cycle.

One way is to use the exhaustion method. (Refer to my earlier article on this). This is mainly for internal use for management reporting.

There is another common way which is illustrated as below:
Illustration:
The financials are for Quarterly Results:
DSO= (AR/Sales) x 90 days,
DIO= (INV/COS) x 90 days,
DPO= ( AP/COS) x 90 days,
DSO+DIO-DPO = CCC (Cash Conversion Cycle) or DWC (Daily Working Capital)

Company	Sales	Cost of Sales (COS)	Inventory (INV)	Accounts Receivables (AR)	Accounts Payables ( AP)	DSO	DIO	DPO	CCC
AAA	2,737	2,103	1,166	1,760	1,382	58	50	59	49
BBB	1,441	1,257	724	654	1,075	41	52	77	16
CCC	8,347	7,879	2,223	4,018	1,611	43	25	18	50

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1 Topics Covered In This Heading:Cash Conversion Cycle(CCC)/Daily Working Capital(DWC)Cash Operating Cycle | FMAccounting Pingback on Mar 10th, 2008 at 9:13 pm

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