CASH MANAGEMENT

Cash Conversion Cycle

Inventory Conversion
Receivables Collection Period
Payables Deferral Period

Inventory Conversion Period

ICP=INVENTORY/(SALES/360)

Receivables Collection Period

RCP=RECEIVABLES/(SALES/360)

Payables Deferral Period

PDP= PAYABLES/(COGS/360)

Cash Conversion Cycle

ICP+RCP-PDP=CCC
ICP is Inventory Conversion Period (days)
RCP is Receivables Collection Period (days)
PDP is Payables Deferral Period (days)
CCC is Cash Conversion Cycle (days)

Reasons to Hold Cash

Take discounts
Invest whenever you need to
Maintain Credit Rating
Emergency Liquidity Needs

Not Too Much, Not Too Little

Too much cash=Problems
Lost income
Lower Returns
Waste of Shareholder Funds
Low Risk, Stodgy Image

Too Little Cash=Problems
Can't take discounts
Can't invest
Risk of insolvency
Higher cost due to reliance on debt