Analyzing the Company's Liquidity Using the Cash Conversion Cycle (Currently Unavailable)

Author: David Osburn

What is the Cash Conversion Cycle? How do you calculate it? What does it really mean in regards to a company’s liquidity position?

You will learn how the CPA should calculate and interpret the Cash Conversion Cycle formula to see its direct impact on the company’s liquidity. Included in the formula will be an assessment of acquiring inventory, collecting account receivables efficiently, and paying the account payables in a “judicious” manner.

Additionally, the course will cover inventory accounting “costing methods,” financing inventory, and controlling inventory costs. The effective collection of receivables will also be reviewed including negotiating “reasonable” terms. Furthermore, the timing of paying the payables will be explored including the impact of taking “discounts.”

The concepts of the Cash Conversion Cycle will be illustrated through a case study.

Publication Date: October 2018

Designed For
CPAs, CFO/controllers, financial managers, auditors, financial analysts and practitioners who provide accounting, tax or consulting services to businesses.

Topics Covered

• Analyzing the Company's Liquidity Position Using the Cash Conversion Cycle
• Activity (Turn Factors)
• Cash Conversion Cycle and its Direct Impact on the Company's Liquidity and Cash Flow
• Inventory Issues
• Account Receivables Issues
• Accounts Receivable & Inventory and the Borrowing Base Certificate (BBC)
• Account Payable Issues
• Related "Liquidity" Issues: Business
• Business Owner

Learning Objectives

• Describe the Cash Conversion Cycle, how it's calculated and how it directly impacts a company's liquidity
• Recognize inventory issues including costing methods, financing, and cost containment
• Identify receivables and "reasonable" terms
• Describe payables and the benefit of "discounts"
• Recognize the Cash Conversion Cycle applied through case study
• Identify how a company's cash conversion cycle can be shortened
• Differentiate how a cash conversion cycle could result understated
• Recognize how the inventory conversion cycle is not affected
• Describe how to calculate a company's borrowing base
• Identify how the ratio for a capital investment in machinery and equipment would likely be necessary to improve
• Recognize what to consider to improve cash flow for both accounts payable and accounts receivable
• Describe what a lender will typically based the advance rate on a company's
• Recognize when a company's liquidity improves
• Identify the result of a shorter cash conversion cycle
• Differentiate which stage inventory generally has the lowest liquidation value
• Recognize what most banks will use when calculating the cash conversion cycle
• Identify the ratio when cost of goods sold is not included
• Identify what a company's goal should be shortened the cash conversion cycle
• Describe what a company's value is largely based upon
• Recognize a credit manager's role
• Differentiate common ratios to use when analyzing a business owner's personal liquidity

Level
Basic

Instructional Method
Self-Study

NASBA Field of Study
Accounting (2 hours)

Program Prerequisites
None

Advance Preparation
None