Cash to cash cycle: The concept of cash to cash cycle is financial performance standard, which is associated with the management of a firm’s working capital. The definition of cash to cash or cash conversion cycle is “the length of time a company’s cash is tied up in working capital before that money is finally returned when customers pay for the products sold or services rendered” (Neil and others 2001). This concept does not take into account the concept of depreciation. Cash to cash cycle is calculated using the following formula:
Cash to cash Cycle (C2C) = Inventory+ Receivables-Payables
Where Inventory = (Inventory/cost of goods sold)* 365 days
Receivables = (Average receivables/ Net sales)*365
Average receivables = (Opening receivable+ closing receivable)/2
Net Sales= Gross sales –sales return
Payables = (Average payables /cost of goods sold)*365
Average payables = (Opening payables + closing payables)/2