The cash conversion cycle measures how long it takes for a business to convert resources (like inventory) into cash. Businesses need to know roughly how long it takes for them to move product along and bring money back into the business, so they can gauge how much to hold back from spending at any given time. A company with a long cycle should keep more cash on hand, because it might be awhile before that cash invested in products comes home to roost.
Usually, the cycle is measured in a number of days, and looks at the time it takes to sell the inventory, and collect the money (receivables). Assuming the business buys items on credit (accounts payable) then sells on credit (accounts receivable), the cash conversion cycle would measure the time between the two accounts.
You know the guy who sells flip flops or sunglasses at the beach? Just sorta sets up where the market is, pops up outta nowhere and tries to guilt you into crap you don't want...yeah, that guy. Say he buys 100 pairs of flip-flops to put into inventory, on credit for $100. He intends to hawk them to unsuspecting beach goers for $5 each, for $500 total, showing a profit of $400. The cash conversion cycle will measure how many days it takes between spending the first $100 and collecting that last dollar of the $500.
As you would guess, the cycle varies a great deal throughout the year (think holiday rush). Or for the flip-flop guy, it would vary on how persistent (annoying) he is.
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Finance: What is Return on Sales (ROS)?3 Views
Finance allah shmoop what is return on sales or r
o s This is your return This is your return
on sale Any questions Oh i see a lot of
hands raised Ok then return on sales are roos is
an investment metric which basically reflects how profitable a company
is that is return here is profits and sales is
well the stuff you sold so return on sales is
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industry or company runs take wear hauser the paper and
pulp company that kills trees and makes them into paper
in a good year They have five billion dollars in
sales and profits of two hundred fifty million Really low
profit margin business especially when you consider that so many
years are well not good But the google search biz
well it's a bunch of servers and algorithm and not
much else So in a given year on sales of
twenty billion box it'll have returns of something like fifteen
billion pretax The basic notion is that you will see
the term return on a ton of other terms like
return on capital return on assets return on equity and
almost always the return that they're referring to There is
profits or earnings And from that ratio of return on
whatever in this case return on sales Investors can impute
a profit margin just a fraction which then derives the
valuation and or various other metrics Important toe Understanding a 00:01:33.812 --> [endTime] given security investment that's Why we study it
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