Still on the subject of KPIs, today we try to define a slightly more complicated one, more in the definition than in the methodology by which it is calculated.
The cash-to-cash cycle time KPI is a measure of the time it takes for a company to convert its investments in inventory and other resources into cash received from customers. This KPI is used to assess the efficiency of a company's working capital management and its ability to generate cash from its operations.
The cash-to-cash cycle time is calculated by adding the average number of days it takes to sell inventory, the average number of days it takes to collect payments from customers, and the average number of days it takes to pay suppliers for goods and services. The resulting number represents the amount of time it takes for a company to convert its investments in inventory and other resources into cash received from customers.
A shorter cash-to-cash cycle time indicates that a company is able to generate cash from its operations more quickly, which is generally viewed as a positive indicator of financial performance. Conversely, a longer cash-to-cash cycle time can indicate that a company is not managing its working capital efficiently, which may lead to cash flow problems and other financial challenges.
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