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Working Capital and Current Asset Management
Published in Bijan Vasigh, Ken Fleming, Liam Mackay, Foundations of Airline Finance, 2018
Bijan Vasigh, Ken Fleming, Liam Mackay
As we can see in the diagram, there are four parts to the operating cycle: the inventory period, the accounts receivable period, the accounts payable period and the cash conversion cycle (Ross, Westerfield and Jordan, 2008). The cash conversion cycle (CCC) can be expressed in terms of the other three parts of the operating cycle. CCC = Inventory Period + Accounts Receivable Period − Accounts Payable PeriodReducing the length of the cash conversion cycle is crucial to any business. Inventory must be sold and cash collected quickly from customers so that a business can buy additional inventory to sell to customers. From the equation for the cash conversion cycle shown above, we see that there are three methods that managers can use to reduce the cash conversion cycle: Reduce inventory periodReduce accounts receivable periodIncrease accounts payable period.
A Study on the Attributes of the Productivity–Liquidity Relationship at the Firm Level
Published in Engineering Management Journal, 2021
Naveen Tiruvengadam, Armando Elizondo-Noriega, Mario G. Beruvides
The cash conversion cycle (CCC) is a popular metric to evaluate the effectiveness of the Working Capital Management (WCM) measures employed by a firm. The CCC measures the speed of inventory churn from creation to sale and is used to understand the availability of liquid capital to a firm (Richards & Laughlin, 1980). The convention is that the lower the CCC, the quicker that the firm can realize cash from its sales, thereby allowing the firm to meet its quotidian expenses. In fact, the relationship between CCC and profitability is inverse in nature (Deloof, 2003; García-Teruel & Martínez-Solano, 2007; Knauer & Wöhrmann, 2013).