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    Cash conversion cycle explained

    By cooldude | January 9, 2013

    Cash conversion, financial tipsThe time period in days that a company requires to fully convert its potential resource inputs into outputs followed by cash flows is what we term as cash conversion cycle. It makes an attempt to measure the exact amount of time every single monetary input requires to be blocked in production, and convert into cash by sales to customers . The cash conversion cycle involves a few stages. Firstly when the buyer takes supplies from the supplier on credit then it creates what we call as accounts payable. The products if sold on credit the results in bills receivable.

    Thus we do not see the involvement of cash unless the bills receivable are received and bills payable are paid. Hence what the cash conversion cycle measures is the time between the cash recovery and cash outlay. The shorter the cash conversion cycle is for a company the better it is.

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