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Cash Conversion Cycles: Sears & JC Penney

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Refer to the Financial Statements for Sears (SHLD) and JC Penney's(JCP) on finance.google.com Calculate each company's Cash Conversion Cycle for the two most recent years.

Discuss what these metrics tell you about the companies' performance.

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Solution Summary

Cash Conversion Cycles for Sears and JC Penney are examined. The financial statements are analyzed.

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Sears (SHLD) Cash conversion cycle Year 2008 (In millions of USD):
Cash conversion cycle (CCC) = Inventory conversion period + Average collection period - Payables deferral period.
Sales $50,703
Inventories $9,963
Receivables $744
Payables $3,487
Cost of goods sold $36,638

Inventory conversion period = Inventory / Cost of goods sold per day
= $9,963 / ($36,638 / 365) = 99.2547 days.

Average collection period = ACP (or DSO) = Receivables / (sales / 365)
= $744 / ($50,703 / 365) = 5.3559 days.

Payables deferral period = Payables / Purchases per day = Payables / (Cost of goods sold / 365)
= $3,487 / ($36,638 / 365) = 34.7387 days.

Therefore, Primrose's CCC = 99.2547 days + 5.3559 days - 34.7387 days = 69.87 days.

Sears (SHLD) Cash conversion cycle Year 2009 (In millions of USD):
Cash conversion cycle (CCC) = Inventory conversion period + Average collection period - Payables deferral period.
Sales $46,770
Inventories $8,795
Receivables $839
Payables $3,006
Cost of goods sold ...

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