Operating Cycle and Cash (Conversion) Cycle Explained

Also known as cash cycle (or cash-to-cash cycle), a business' cash conversion cycle (CCC) is an EXTREMELY IMPORTANT measure of its working capital management. In this video, I explain what is CCC, and why all (prospective) business managers MUST have try to minimize their conversion example. I also cite real-world evidence which shows how firms which effectively manage their CCC tend to outperform their competitors.
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My name is Atif Ikram. I am a Clinical Professor of Finance at Arizona State University, where I teach courses in Corporate Finance, Personal Finance, Real Estate Finance and Investments (wpcarey.asu.edu/people/profil....
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[@ThaoLe-vp9bz]

OMG I have been seeking for a detailed video which explain about CCC, AR, and AP. Tomorrow I have an assignment and you are such a life saver that I have to write down this comment! Thank you so much the best explanation video ever!

[@professorikram]

Thank you so much Thao! Appreciate your kind comment. Also, I have recently created a website called SimpliTaught (www.SimpliTaught.com) to help students. It's in beta mode right now, but check it out. There, you can find curated content for your college textbooks. Would welcome any feedback.

[@oo-nj7kg]

It is so easy to understand, thanks a lot!

[@dianad8683]

The best explanation!!! WOW!!!

[@thebigmora]

perfect explanation , thanks

[@nopphanutngamvitroje498]

You are life saver! Thank you

[@xX3laal9amtXx]

Amazing explanation ❤

[@angelmaravilla4708]

You explination was great! But I've got a doubt no one in youtoube talks about, hope you can help me: How do you calculate CCC of a consulting software company?? I mean, they don't have inventory account; what elements are usted in that case??, do you have a link to a case study that analyzes this particular example?? 🙌

[@professorikram]

Sorry for the delayed response Angel. For services companies in general, inventory is low/non-existent. So that is great, in that no cash gets tied up there. However, they also tend to have low payables - no real suppliers from whom they are getting purchases either. The calculation for CCC is stil the same. But the characteristics of the industry, to a llarge extent, determine the magnitude of each of its components.

[@larco9028]

Why do you use COGS in the accounts payable formula? Couldn't there be instances where you pay a supplier but you still don't sell the good?

[@professorikram]

Hi Larco! That is a good question. COGS is not necessarily the amount we pay to the supplier ... it includes the amount that we may still OWE to the supplier, i.e. still in Accounts Payable. The reason why we use COGS is because that is amount that we either pay or owe to the supplier. COGS and Accounts Payable go together just like Sales and Accounts Receivable go together.