The cash conversion cycle makes it easier to assess the operational efficiency of a company in managing its resources. As it is true with other cash flow computations, the shorter the cash conversion cycle, the better the business is at selling its inventories and recovering money from these sales while paying vendors.
Given our previous shows on Financial Reporting, Break Even Analysis, and Activity Based Costing; build a spreadsheet for managing cash flow that will identify periods when the outflow of cash exceeds its inflow to determine how much cash on hand is required to meet all of your financial obligations on time.
EPISODE 81: Summary
The cash conversion cycle measures how efficiently a company’s management is handling its working capital. It shows the length of time between an entity’s purchase of inventory/materials and the receipts of cash from its accounts receivables. More precisely, it is put in practice by the management to envisage how long a company’s cash remains tied up in its operations.
EPISODE 82: Money In - Money Out
Let's get this puppy rolling. None of this difficult, it is really a thought process to capture how money is flowing in and flowing out. You start with a Balance & Cash Flow Statements. Then add your Sales Forecast to build an accurate picture of the next 90 or 120 days.
EPISODE 83: Building Your Spreadsheet
Now that we have broken down the Balance & Cash Flow Statements, you need to create a spreadsheet where you can track the flow of dollars or pounds or euro's - or any currency. It is powerful for you to do this manually to really understand how this cycle takes place to identify trouble periods. I have found this the most useful way of doing it rather than having it built for you.
EPISODE 84: Capacity, Sales, and Working Capital
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