CCP and Activity Measures
1
•
Calculation of the
Cash Conversion
Period (CCP)
relies on three activity
measures.
•
Activity measures indicate how efficiently
the firm is using its assets.
–
Days Inventory Held (DIH)
•
Inventory Turnover
–
Days Sales Outstanding (DSO)
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Cash Conversion Period (CCP)
2
•
Days Inventory Held (DIH)
measures
inventory management by calculating the
average length of time inventory is in
stock before being sold.
Inventory
Cost of Sales / 365
Days Inventory
Held =
Note:
Using
average
inventory is a
more accurate
calculation.
Cash Conversion Period (CCP)
3
•
Days Sales Outstanding (DSO)
measures credit / collections
management by calculating the average time to collect from
customers.
Receivables
Sales / 365
Days Sales
Outstanding =
Note:
Using
average
receivables is a
more accurate
calculation.
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Cash Conversion Period (CCP)
4
•
Days Payables Outstanding (DPO)
measures payables
management by calculating the average time from inventory
receipt to payment.
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- Spring '12
- VictorWakeling
- Balance Sheet, Generally Accepted Accounting Principles, Cash Conversion Period
-
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