How To Calculate The Cash Conversion Cycle | And What It Means

Cash Conversion Cycle is the length of time it takes a company to complete the sale cycle, from the production of finished goods through paying off its suppliers. I break it all down in this video.
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[@webby7106]

Best teacher on accounting. Simple and straightforward.

[@TheFinancialController]

Thanks webby

[@thierryyapi6199]

You are an excellent accounting and finance teacher. You should definitely think about starting your own CPA or CMA review course. I can guarantee you will have no problems enrolling aspiring CPA and CMA candidates. Good luck Sir.

[@Mirakia4]

I know this will probably depend heavily on the specific industry, but what are some metrics that can be tracked/analyzed to help depict the financial health of a service based business that does not sell inventory and does not offer credit sales❓

[@TheFinancialController]

Will do a videos on that

[@Mirakia4]

@@TheFinancialController Yay‼️ Thank you‼️

[@TucsonArizona]

Thanks for sharing! I didn’t know much about this topic until watching this video so I learned a lot! Keep this content coming! I’m following!

[@TheFinancialController]

Thanks 🙏

[@jolly110383]

This is great!! Love when accounting is simplified, makes it fun to learn. Thank you!

[@stilesinvestmentsllc722]

But Bill glossed over how to calculate the net credit sales from the financial statements. I tried to figure out these numbers for TXN for 12/31/22, and got: DIO: 161, DSO: 369, DPO: 50, and CCC:480. I have no idea if my DSO calculation is correct. In his Balance Sheet Cheat Sheet, Bill describes the DSO calculation as "AR / Credit Sales * # of days in period" and gives an example of "2,000,000 / 2,000,000 * 31" but did not explain where the second "2,000,000" came from.

[@ishtaiqmalik8368]

DPO Sir only i want to ask that we read the formula that AP/Net credit purchase & you used the cost of goods sold. which one is correct, could you explain?

[@jenncote450]

Thank you for this video. How would you calculate the cash conversion cycle for a company in the service industry where there is no inventory and only wages.

[@mailinhtrinh1554]

If it has purchases expense and COGS which price should I divide to calculate DPO

[@ThreatsTailors]

for DPO Calculation, why cost of sales, why not credit purchases.?

[@nihalriyas295]

Can you explain bad debts and doubtful debts in your future video

[@TheFinancialController]

Ok sure

[@kanagasrinivasan3793]

Thank you Bill for this video.. and may I ask you a doubt please. For DPO calculation why are we dividing Accounts payable by cost of sales why are we not dividing by Net credit purchase?
It will be so great if you could clarify me this..

[@TheFinancialController]

hik kanaga, I don't think you can use net credit purchases because what if the company buys a large bulk of raw material to cover the next 2 years production for example. That would skew this formula dramatically. This is why we use COGS or COS

[@kanagasrinivasan3793]

Yeah.. I get you.. thanks for your prompt response.. great

[@insane_squirrel83]

@@TheFinancialController to follow up on this doubt, is the AP being adjusted to only be AP related to CoS or COGS?
As I think this would result in a skewing in the other way making it look better than it actually is.
Or would it make sense to do total AP over total expenses less non-cash items?

[@evansjuma3831]

This is super, you have brought out the concept in a very simple way.
Many thanks 😊

[@TheFinancialController]

Thanks evans

[@Avening123]

Just to confirm. When you are calculating the DIO, you should take the inventory of a full-year divided by the avg. Costs of sales of the year? Or, you take both numbers of one specific period?
Same with the others KPIS.
Thanks!!

[@guidopaez8574]

I like your videos, but you do realize your formulas are multiplying by 365 instead of dividing it by 365 in order to get the number of days. If you multiply you don’t get the correct answer.

[@hackit9578]

Brilliantly explained. 👏 Again you make it so simple to understand. Thank you 😊.

[@TheFinancialController]

Thanks keshnie

[@hackit9578]

@@TheFinancialController 😊 can you please explain maintainance of the fixed asset register. Thank you.

[@alangerardohurta]

The best accounting teacher and helping professionals and students by explaining in a simple and clear way.

[@sgopalakrishnan8715]

hi sir, i have been following your since past couple of months...your videos are very informative and i learned a lot from it..I'm looking for job in Delhi,India..if possible please connect me with them

[@MrCosmos555]

Thank you very much for the explanation. I still have a question, where to get the information about all these numbers (dio, dso etc.)?

[@hazemmahmoud9399]

First ... Thank you for all videos
Second .. You forget to mention when We dividing an account from balance sheet with an account from income statement ..We use an average for balance sheet account

[@larahporter8123]

This was an excellent video. I have a degree in BA and Accntg and this lesson was on point. Why professors take 3 hours to explain this?! 🤣

[@kiranh2093]

Hi Bill, With regards to DIO calculation, should we consider Finished Goods ?

[@irfanjoni3137]

Thank you sir

[@merceehh]

Hi Bill should I also exclude cash payment in cost of sales just like in net of credit sales? Thank you

[@rogerloydmccoy]

Can this be calculated on different intervals such as monthly by month within a the year?

[@yinyin7614]

Thanks for teaching. Well explained.

[@Mac40940]

Great

[@mustaro7792]

Good sharing & informative 👍🏼

[@larco9028]

Hi- why do you use COGS in the Accounts Payable Outstanding formula? Couldn't there be instances where a product isn't sold yet but we pay the invoice?

[@diajeng-cinta]

I think by the definition of APO or whatever, there is the norm "payable", which means will pay in the "future"...so prepaid, which means paid in the "past', is no option to apply for here.

[@the_tax_consultant]

Aka working capital days!

[@muneeba-asghar]

❤❤❤❤❤

[@oneildacres1198]

Great Info! Explained easily with good examples.

[@TheFinancialController]

Thanks so much!

[@rabihjamaleddine3121]

Congrats for your style of explanation

[@TheFinancialController]

🙏 thanks

[@raedbamoudah2512]

Great

[@tanushreeadak3660]

Is this operating cycle?

[@summerbreeze5115]

Si

[@rosmaryalgarin9292]

finally i understand clearly thanks for the video

[@TheFinancialController]

Thank you for watching almost all my videos:)

[@rosmaryalgarin9292]

i'm so happy for your answer

[@ahmedismail717]

The Big boss and my idol

[@TheFinancialController]

Thanks abu hmeed!