It is evident in life that, before entering business, one has to learn its strategy to make a profit

and continue in business. Hence, one needs to know how to keep money in different way, such as
in securities be it share, bonds etc. etc that can be converted easily at the right time, as surplus
money in a business gives rise to an opportunity cost of idle cash. Hence, one needs to know the
actual money to convert to avoid unnecessary charges. To achieve this, I learned about working
capital = Current Assets - Current Liabilities (Boundless, n.); this week’s learning unit teaches
me short-term financing strategies, the cash realization cycle, and managing flaws in the cash
realization cycle. With this, the discussion assignment wants me to display knowledge acquired
in exploring key elements of the cash realization model and describe each element's role.

In view of the above, I will say Cash Conversion Cycle (CCC) measures the time it takes a
company to turn its resource inputs into cash (Corporate Finance Institute, 2023).

The cash realization model, also known as the net operating cycle or the cash cycle, is a tool for
managing cash (Hayes & James, 2021). The CCC measures the time it takes for a company to
convert its investments into cash flows from sales; that is, the CCC measures the time it takes a
company to turn its resource inputs into cash.

The diagram depicts the CCC, which shows the components of the model: accounts receivable,
inventory, and accounts payable, where:

DIO = Days Inventory Outstanding

DSO = Days Sales Outstanding

DPO = Days Payable Outstanding (Corporate

Finance Institute, 2023).

 These key elements of cash realization's importance cannot be overemphasized, but they are
clearly seen as the best process in cash circulation, as shown in formula CCC = DIO + DSO –
DPO. The importance of these key elements in the cash realization process in a business cannot
be overstated. Whereas DIO is also DSI (Hayes & James, 2021), is the average total days a
company holds inventory before selling, whereas, the Average Inventory 0 (BI + EI): BI =
beginning inventory + EI= ending inventory (Hayes & James, 2021); this is calculated as:

Meaning the quicker inventory is turned into sales in days,

the better the business grows.

The DSO is the amount of time the company takes to collect its receivables or money from its
debtors. Whereas: Average Accounts Receivable = 0 (BAR + EAR). BAR=Beginning AR +
EAR= ending AR (Hayes & James, 2021), and it is calculated as (CFI).

 
This shows that the higher this value, the better the stability of the company's cash position.

The DPO is the amount of time the company takes to pay its money or payable to its creditors,
whereas Accounts Receivable = 0 (BAR + EAR), i.e., BAR=Beginning AR + EAR = Ending
AR, and it is calculated as:

(Corporate Finance Institute, 2023).

The better the value, the greater the increase for potential investment.

From the above, the DPO and DSO are twin figures that show the financial relationship between
the money the company earns and owes (Russell, 2023). Therefore, the CCC is a cycle where the
company buys and sells inventory on credit, gathers the accounts receivable, and turns them into
cash, increasing the company's value for potential investment.

 
 References

Corporate Finance Institute. (2023, May 07), Cash Conversion Cycle. Retrieved May 9, 2023, from
https://corporatefinanceinstitute.com/resources/accounting/cash-conversion-cycle/

Hayes & James (2022, June 15). Cash Conversion Cycle (CCC): What Is It, and How Is It Calculated?.
Investopedia. https://www.investopedia.com/terms/c/cashconversioncycle.asp

Russell, B. (2023, April 28). Calculating DPO vs. DSO (including Days Payable Outstanding formula). Cube
Software. Retrieved May 9, 2023, from

https://www.cubesoftware.com/blog/days-payable-outstanding-formula#:~:text=Two%20metrics
%20that%20help%20you,versus%20the%20money%20they%20owe