Framework

Working capital and the cash conversion cycle

The question it answers

When the business is profitable yet short of cash, how long does it take a CFO's cash to pass through stock, receivables and payables and come back?

Origin
Richards and Laughlin (1980); evidence on profitability in Deloof (2003)
Diagram type
Cycle
Level of analysis
Firm
Topics
Corporate financeSupply chain & operations
Stack of clay coins beside a rising glass bar chart, icon for finance

Diagram

Working capital and the cash conversion cycle

  1. Buy stock (days inventory)
  2. Sell on credit (days receivable)
  3. Collect cash
  4. Pay suppliers (days payable)

Sources

References

Listed A–Z by author surname, Harvard style. A source with a DOI links to https://doi.org/…; one without links to its page or says plainly that it has no DOI.

  1. Deloof, M. (2003) ‘Does working capital management affect profitability of Belgian firms?’, Journal of Business Finance & Accounting, 30(3–4), pp. 573–587.doi:10.1111/1468-5957.00008Source page
  2. Richards, V.D. and Laughlin, E.J. (1980) ‘A cash conversion cycle approach to liquidity analysis’, Financial Management, 9(1), pp. 32–38.doi:10.2307/3665310Source page