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15 Cards in this Set

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  • Back
Cash conversion cycle
Payable inventory receivable collect
= Inventory conversion period + Receivables conversion period – Payables conversion period
Cash conversion cycle
= inventory conversion period (low)
+Receivable collection period (low)
- payables deferral period (high - delay)
inventory conversion period
= Average inventory / avg. cost of sales per day
Receivable collection period
= Days sales outstanding = Avg. Res/ Avg. sales per day
payables deferral period
= Avg paybles / Avg. purchases per day
Days sales outstanding DSO (Receivable collection period)?
DSO = (AVG Receivables/Sales)*Days.OR
Receivable collection period= Avg. Res/ Avg. sales per day
DSO Days sales outstanding?
used for
360/ A/R Turnover
credit sale / 360
Avg A/R / Avg sales per day

The avg. # of days req. to collect A/R
CCC (in days) = Inventory conversion period + Receivables conversion period – Payables conversion period
"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).
Payables conversion period =
(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
Inventory conversion period =
OR Inv. T/Over in Days
AVG Inventory
COGS /365
(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
Receivables conversion period =
Avg. Accounts Rec
net Sales/ 365
365/ A/R TOver
= days holding receivables until the last cash collection
Inventory Turnover
is indicatior of __________
The higher the T/Over ->
It would assist w/identifying______________
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
Receivables Turnover Ratio =
is indicatior of ____________
Faster T/Over gives credibility to the ______________
Low T/Over -______________

High T/Over -______________
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
(Days Sales Outstanding) Average Collection Period =
365 / Receivables Turnover Ratio
= Avg AR /credit sales/ 360
days sales in Inventory
OR Avg age of inventory =
360 / inventory turnover,
Inventory T/over=COGS/ AVG inventory
= (Avg inv. / COGS) * 360 = AVG Inv. / sales cost per day