1. Working Capital Management
Cash Management
by Imran Khan

2. What is cash conversion cycle?
Cash conversion cycle as discussed in the previous lecture emphasize on the length of time between when the firm makes payments and when it receives cash as inflows.

3. Items involved in the cash conversion cycle
Inventory conversion period:
It refers to the average time needed to convert
materials into finished goods and then sell these
goods out.
Inventory conversion period (days)= Inventory/ sales per day

4. Receivables collection period
It refers to the average length of time required to convert a company’s receivables into cash or in other words it is the time required to collect cash following a sale. Also known as Days Sales Outstanding (D.S.O) Receivables collection period= receivables sales/365

5. Payables deferral period
It refers to the average length of time between the purchase of labor and materials and the payment of cash for them.

6. Summing up the above items
When the three items from the previous slides are
summed up, it results in cash conversion cycle.
Hence,
Inventory conversion period+ receivables collection period- Payables deferral
period= Cash conversion cycle

7. Question
Medwig Corporation has a DSO of 17 days. The company averages $3500 in credit sales each day. What is the company’s average accounts receivable?