Cash-to-cash cycle time is a critical measure of a firm’s working capital utilization. It calculates the time taken between outlaying cash for raw materials and receiving cash from product sales. Key points include:
Definition: Cash-to-cash cycle time = Days of Inventory Outstanding + Days Sales Outstanding - Days Payable Outstanding.
Working Capital Efficiency: It measures how efficiently a company is managing its working capital. Shorter cycles indicate better utilization of cash resources.
Impact on Liquidity: A shorter cash-to-cash cycle improves liquidity, as the company can quickly turn its inventory into cash.
Operational Performance: This metric reflects overall operational efficiency, including procurement, production, and sales processes.
References:
Coyle, J. J., Langley, C. J., Novack, R. A., & Gibson, B. J. (2016). Supply Chain Management: A Logistics Perspective. Cengage Learning.
Bragg, S. M. (2010). Business Ratios and Formulas: A Comprehensive Guide. Wiley.
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