Thoughts on searching for businesses based on Cash Conversion Cycle?

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August 28, 2019

by an member from York University in Toronto, ON, Canada

I am writing a blog post on cash conversion cycles (largely for selfish reasons - as I want to understand the concept a bit better and how it might impact how I'd look for companies).

https://docs.google.com/document/d/1mKfuUhjP-3HQWCvkEoNe9ERejnDl0A5c-M_34vNuOSw/edit?usp=sharing

I'd love to get feedback from people in the community if they're up for it. Feel free to comment on the document or post your general thoughts in the thread.

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commentor profile
Reply by a searcher
from Harvard University in 1970 Walton Dr, Burlington, WA 98233, USA
I purchased a seasonal consumer durables manufacturer. Our industry has horrible CCC characteristics. I'm buying plastic sheeting now that will be a paid invoice next June (!). That said, due diligence found opportunities to improve all three components: accelerate payment by automating collection reminders, grow AP days through use of a purchase card, and increase inventory turns by using projections to guide inventory purchase decisions. Understanding a company's conversion cycle relative to its peers, and identifying opportunities for improvement, is a big opportunity.
commentor profile
Reply by a searcher
from Monash University in San Francisco, CA, USA
IMHO - cash conversion cycle advantages (or ability to improve) is a key thing i'm looking for. From experience running other businesses, if your execution is average, but you're able to spend more free cash flow / float on growth tactics, you will destroy your competitors because they literally wont be able to run as many projects / hire as many sales people / etc.
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