The Cash Conversion Cycle (CCC): The King of the Cash Flow Statement?

Learn more: breakingintowallstreet.com/co...
In this tutorial, you'll learn about the Cash Conversion Cycle in financial statement analysis and understand when it's useful vs. not so useful, and what it means for valuations.
Files & Resources:
breakingintowallstreet.com/kb...
Table of Contents:
0:00 Introduction
3:49 Part 1: CCC Calculations for Target and Costco
6:50 Part 2: Valuation Impact
8:30 Part 3: When is the Cash Conversion Cycle Useful?
9:55 Recap and Summary

[@financialmodeling]

Files & Resources:
breakingintowallstreet.com/kb/financial-statement-analysis/cash-conversion-cycle/
Table of Contents:
0:00 Introduction
3:49 Part 1: CCC Calculations for Target and Costco
6:50 Part 2: Valuation Impact
8:30 Part 3: When is the Cash Conversion Cycle Useful?
9:55 Recap and Summary

[@dylank1481]

Would be interesting to see a similar video for software businesses. How payment terms (multi-year upfront, annual upfront, or monthly) affects CCC. No DIO because no inventory.

[@financialmodeling]

Thanks. We do cover some of these points in the video on SaaS accounting from a few months ago. For software companies, most people would probably just look at the Change in Deferred Revenue or Change in DR - Change in AR over something like the CCC due to the lack of Inventory.

[@kevinkinsella7815]

Thank you

[@financialmodeling]

Thanks for watching!

[@yo-rourke3718]

😱👏

[@ksenianesterenko4]

Why are we getting avarage in 2 years and after calculating only 1?

[@financialmodeling]

I'm not quite sure what you mean. We almost always look at the average Balance Sheet metrics because in the CCC calculation, we are comparing Balance Sheet line items to Income Statement metrics such as Revenue and COGS, which correspond to a period of time. We can't compare a snapshot-in-time metric (AR, AP, Inventory, etc.) to a "period of time" metric like Revenue, so the normal approach is to use the average for the Balance Sheet metrics.