Cash Conversion Period (Cycle)

Cash Conversion Period (Cycle) - customers. Receivables...

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Cash Conversion Period (Cycle) 1 We are concerned with the amount and timing of cash flows. We have to build and sell products, then get paid before we generate cash inflows. In the meantime, we have cash outflows for supplies and labor. This creates the Cash Conversion Period (CCP), the elapsed time between payment
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CCP and Activity Measures 2 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
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Cash Conversion Period (CCP) 3 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.
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Cash Conversion Period (CCP) 4 Days Sales Outstanding (DSO) measures credit / collections management by calculating the average time to collect from
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Unformatted text preview: customers. Receivables Sales / 365 Days Sales Outstanding = Note: Using average receivables is a more accurate calculation. Cash Conversion Period (CCP) 5 Days Payables Outstanding (DPO) measures payables management by calculating the average time from inventory receipt to payment. Payables Cost of Sales / 365 Days Payables Outstanding = Note: Using average payables is a more accurate calculation. Cash Conversion Period (Cycle) 6 Three Activity Measures explain the CCP: Days Inventory Held (DIH) Days Sales Outstanding (DSO) Days Payables Outstanding (DPO) CCP = [Production Cycle + Collection Cycle] Payment Cycle Cash Conversion Period (CCP) 7 DIH DSO DPO Cash Conv. The CCP is generally positive; the longer the CCP the more financing is required for inventory and receivables. A lengthening cycle could signal liquidity issues....
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Cash Conversion Period (Cycle) - customers. Receivables...

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