C2C Cycle

The Cash- to - cash cycle (C2C): The average number of days rqd o convert a dollar invested in product inventory into a dollar collected from a customer is referred to as cash to cash performance. This cash to cash ratio has the following formula: o C2C = inventory (days of supply) + Accounts Receivable (days) - Accounts Payable (days) This metric is used to analyze or benchmark SC performance. Universal comparison as it is a ratio C2C cycle represent the time it takes between paying for raw materials and receiving payment for the finished product 3 points to manage a C2c: 1. Increase the av accounts payable 2. Reduce cycle time and safety stock to reduce inventory of supply on average 3. Lower your av accounts receivable Time between spending your money and getting it back usually measured in days An indicator of having a leaner and more efficient supply chain C2C - DIO + DS) - DPO DIO = days inventory outstanding DSO = days sales outstanding DPO = days payable outstanding
DIO - days on hand of inventory, quant we sell in relation to quant we hold DSO - av no of days it takes a company to collect payment after a sale is made (DSO = av accounts receivable/annual revenue x 365 ) DPO - av time a company takes to pay its bills/suppliers ( we want this to be longer) (DPO = av accounts payable / annual CPGS x 365 Reading: Cash Conversion Cycle (C2C) What it is and how to calculate it Measures how long each net input dollar is tied up in the production and sales process before it gets converted into cash received. C2c is not applicable to all industries for example software companies that don't hold inventory
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