What is the cash conversion cycle and how is the cash conversion cycle calculated?
The cash conversion cycle is a metric that is used to describe how long it takes for a company to convert its investments in inventory and other resources into cash flows from sales. The cash conversion cycle is considered a metric that expresses the length of time, in days, that is takes for a company to convert inputs into cash flows. The cash conversion cycle is computed as follows:
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How do you calculate the current ratio?
The current ratio indicates the number of times current assets will exceed current liabilities to measure short-term solvency. This is a ratio that will help determine whether a firm has the ability to meet its short-term obligations.
How do you calculate the cash ratio?
The cash ratio measures the cash and cash equivalents of a company. It is regarded as the most conservative liquidity ratio as it measures only cash and cash equivalents. All other current assets are excluded from this formula.
How do you calculate the quick ratio or acid test?
The quick ratio is a liquidity test that unlike the current ratio, excludes inventory and prepaid assets. This is considered an even more severe liquidity test than the current ratio as inventory is considered the least liquid of all current assets.