Tesco and Cash Conversion

I found an interesting article from Seth Jayson on the publication Daily Finance, on a tool to measure the effectiveness of a company in turning cash over. He uses the Cash Conversion Cycle in days or CCC.As his example covered Tesco I thought it worth showing. His main point is the number of days to convert should be stable, or even better declining as that shows they are turning cash over faster.

Why does the CCC matter? The less time it takes a firm to convert outgoing cash into incoming cash, the more powerful and flexible its profit engine is. The less money tied up in inventory and accounts receivable, the more available to grow the company, pay investors, or both.

To calculate the cash conversion cycle, add days inventory outstanding to days sales outstanding, then subtract days payable outstanding. Like golf, the lower your score here, the better. The CCC figure for Tesco for the trailing 12 months is 112.0.

Considering the numbers on a quarterly basis, the CCC trend at Tesco looks good. At 102.2 days, it is 14.8 days better than the average of the past eight quarters. With both 12-month and quarterly CCC running better than average, Tesco gets high marks in this cash-conversion checkup.  


Seth Jayson