Case Brief – Homing In on Cash Conversion

Case Brief Student: Professor: Course title: Date: Case Brief – Homing In on Cash Conversion This chapter focuses on the cash conversion cycle (CCC), which measures the effectiveness of a company at collecting its cash. The authors first consider how quick a firm decides to pay the money that it owes its vendors, and this leads to a very important aspect – accounts payable. Financial considerations would encourage company managers to capitalize on days payable outstanding (DPO), and therefore, conserving the cash of the company. A change in this ratio has significant effects on the company’s cash balance (Berman, Knight & Case, 2008). Apart from financial considerations, there are also other considerations, for instance, how much leverage does the company has with vendors – will they keep doing business with a late payer? The other vital consideration is the Dun & Bradsheet (D&B) rating which bases its scores partly on the history payment of a company. A firm that is always paying late might find that it has difficulty getting a loan in future. Paying bills on time is essential for a company also because it positively affects the reputation of the company and the relationship it has with it vendors. In the long term, this helps in building a stronger community of businesses around itself (Berman, Knight & Case, 2008). The cash conversion cycle (CCC) The cash conversion cycle (CCC) also helps to understand working capital. In essence, it is a timeline that relates the production stages – the operation cycle –, to the firm’s investment in working capital. It has three levels, and understanding them and their measures offers an imperative way to understand the busin...