Cash Conversion Cycle: Example
To show how the elements of the cash conversion cycle come together, let’s look at the actual figures for a publicly traded company that operates a chain of natural foods supermarkets for a recent 12-month period. The numbers in the example are taken from the company’s balance statements and income statements.
|
All Figures in Thousands |
||
|
As of Year 1 |
As of Year 2 |
|
|
Inventory |
323,487 |
310,602 |
|
Accounts Receivable |
133,346 |
104,731 |
|
Accounts Payable |
213,212 |
189,597 |
|
Sales (for previous 12 months) |
9,005,794 |
|
|
Cost of Goods Sold and Occupancy Costs (for prior 12 months) |
5,870,393 |
|
Since these figures are in thousands, we’ll keep them that way for now to avoid having to track the extra zeros.
Recall that the cash conversion cycle equals:
days inventory outstanding + days sales outstanding – days payable outstanding
To determine the company’s cash conversion cycle, we’ll first need to calculate each component of the equation.