How To Calculate Cash Conversion Cycle in Kinetic | Arithmix

Calculating the cash conversion cycle (CCC) is an essential aspect of managing your business's financial health. It helps you understand how long it takes for your company to convert its investments in inventory and other resources into cash. This is an important metric because it gives you an idea of how efficiently your business is operating. In this article, we will discuss how to calculate the CCC in Kinetic, a popular accounting software.

What Is Cash Conversion Cycle?

The cash conversion cycle is a financial metric that measures the time it takes for a company to convert its investments in inventory and other resources into cash. It is calculated by adding the number of days it takes to sell inventory, the number of days it takes to collect accounts receivable, and the number of days it takes to pay accounts payable. The formula for calculating the CCC is:

CCC = DIO + DSO - DPO

Where:

• DIO = Days Inventory Outstanding
• DSO = Days Sales Outstanding
• DPO = Days Payable Outstanding

The CCC is expressed in days, and the lower the number, the better. A shorter CCC means that a company is converting its investments into cash more quickly, which is a sign of good financial health.

When Is It Valuable To Calculate Cash Conversion Cycle?

Calculating the CCC is valuable in many situations. For example, if you are a business owner, you can use the CCC to:

• Identify inefficiencies in your supply chain: If your CCC is high, it may indicate that you are holding too much inventory or that your accounts receivable are taking too long to collect. By identifying these inefficiencies, you can take steps to improve your processes and reduce your CCC.
• Manage your cash flow: By understanding your CCC, you can better manage your cash flow. For example, if your CCC is high, you may need to increase your cash reserves or seek financing to cover your expenses until you receive payment from your customers.
• Compare your performance to industry benchmarks: The CCC can vary widely by industry, so it's important to compare your performance to industry benchmarks. This can help you identify areas where you are performing well and areas where you need to improve.

Overall, calculating the CCC is an important aspect of managing your business's financial health. By understanding how long it takes for your company to convert its investments into cash, you can make informed decisions to improve your processes and manage your cash flow more effectively.

How Do You Calculate Cash Conversion Cycle in Kinetic

Kinetic itself isn’t naturally geared towards letting you calculate complex metrics like Cash Conversion Cycle. As an alternative, teams typically use products like Arithmix to import data from Kinetic and build out dashboards.

What is Arithmix?

Arithmix is the next generation spreadsheet - a collaborative, web-based platform for working with numbers that’s powerful yet easy to use. With Arithmix you can import data from systems like Kinetic, combine it with data from other systems, and create calculations like Cash Conversion Cycle.

In Arithmix, data is organized into Tables and referenced by name, not by cell location like a spreadsheet, simplifying calculation creation. Data and calculations can be shared with others and re-used like building blocks, vastly streamlining analysis, model building, and reporting in a highly scalable and easy to maintain platform. Data can be edited, categorized (by dimensions) and freely pivoted. Calculations are automatically copied across a dimension - eliminating copy and paste of formulas.

Arithmix is fully collaborative, giving your entire team access to your numbers and the ability to work together seamlessly.

Calculating Cash Conversion Cycle in Arithmix

Calculating metrics like Cash Conversion Cycle is simple in Arithmix. Once you've created your free account, you’ll be able to import your Kinetic data, and use it to create natural language formulas for metrics like Cash Conversion Cycle.

Arithmix is designed to give you the power to build any calculations you want on top of your Kinetic data, while also being easy to use and collaborate on. You can share your dashboards with users inside and outside of your organisation, making it easy to empower your whole team.