How To Calculate Cash Conversion Cycle in Kronos | Arithmix
Learn how to calculate cash conversion cycle in Kronos with our step-by-step guide. Improve your financial management skills and optimize your business operations for better cash flow.
Calculating cash conversion cycle is an essential part of financial management for any business. It helps you understand how long it takes for your company to convert its investments into cash. This metric is particularly useful for businesses that rely on inventory and accounts receivable to generate revenue. By tracking your cash conversion cycle, you can identify areas where you can improve your cash flow and optimize your working capital.
What Is Cash Conversion Cycle?
Cash conversion cycle (CCC) is a financial metric that measures the time it takes for a company to convert its investments in inventory and accounts receivable into cash. The CCC formula is simple: CCC = DIO + DSO - DPO, where DIO is days inventory outstanding, DSO is days sales outstanding, and DPO is days payable outstanding.
Days inventory outstanding (DIO) measures how long it takes for a company to sell its inventory. It is calculated by dividing the average inventory by the cost of goods sold and multiplying the result by 365. Days sales outstanding (DSO) measures how long it takes for a company to collect its accounts receivable. It is calculated by dividing the average accounts receivable by the total credit sales and multiplying the result by 365. Days payable outstanding (DPO) measures how long it takes for a company to pay its suppliers. It is calculated by dividing the average accounts payable by the cost of goods sold and multiplying the result by 365.
By subtracting DPO from the sum of DIO and DSO, you get the cash conversion cycle. A positive CCC means that a company is taking longer to convert its investments into cash, while a negative CCC means that a company is converting its investments into cash faster than it is paying its suppliers.
When Is It Valuable To Calculate Cash Conversion Cycle?
Calculating cash conversion cycle is valuable for any business that relies on inventory and accounts receivable to generate revenue. It is particularly useful for businesses that have a long sales cycle or a high level of inventory turnover. By tracking your CCC, you can identify areas where you can improve your cash flow and optimize your working capital.
For example, if your CCC is too high, it may indicate that you are holding too much inventory or that your accounts receivable are taking too long to collect. In this case, you may want to consider reducing your inventory levels or implementing more efficient collection processes. On the other hand, if your CCC is too low, it may indicate that you are paying your suppliers too quickly or that you are not taking advantage of credit terms.
Overall, calculating cash conversion cycle is an important part of financial management for any business. By understanding how long it takes for your company to convert its investments into cash, you can make informed decisions about how to optimize your working capital and improve your cash flow.
How Do You Calculate Cash Conversion Cycle in Kronos
Kronos 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 Kronos 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 Kronos, 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 Kronos 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 Kronos 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.Use Arithmix free