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Financial Intelligence, Revised Edition
book

Financial Intelligence, Revised Edition

by Karen Berman, Joe Knight, John Case
January 2013
Beginner content levelBeginner
272 pages
6h 32m
English
Harvard Business Review Press
Audiobook available
Content preview from Financial Intelligence, Revised Edition

30

Homing In on Cash Conversion

In this chapter we’ll take up the cash conversion cycle, which measures how effective a company is at collecting its cash. But there’s one little wrinkle we have to consider first—how fast a company decides to pay the money it owes its vendors.

Accounts payable is a tough number to get right. It’s an area where finance meets philosophy. Financial considerations alone would encourage managers to maximize days payable outstanding (DPO), thus conserving the company’s cash. A change in this ratio is as powerful as a change in the other ratios we’ve been discussing. In our sample company, for instance, increasing DPO by just one day would add about $19 million to the company’s cash balance.

Companies do often use DPO ...

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Publisher Resources

ISBN: 9781422144121