Sam Parr  ⚪️

The cash conversion cycle measures how effectively a company can collect cash, sell inventory, and pay suppliers. Companies that master the cash conversion cycle are able to effectively finance operations and fund growth with their customer’s money.

This report looks at the metrics for thousands of public companies and identities 5 industries and related companies that have favorable cash conversion dynamics and opportunities within those industries moving forward.

The industries and companies we identified: Restaurants (Chipotle), Entertainment (AMC), Printing (Cimpress), Personal Retail Products (Coty), and Business Services (Autodesk).

In analyzing Amazon, observers should focus on the e-commerce company’s free cash flow rather than its net profit, which doesn’t properly take into account investments in capital goods.

As a point of comparison, Walmart had a CCC of positive 2 days in 2019; while this figure is quite efficient, Walmart effectively has its cash tied up for 2 days while its inventory turns to cash to be collected. This is a huge advantage for Amazon.

While the model is monstrously hard to duplicate, the broader lesson remains. In the 2020 business environment where “cash is king” is more sexy than “growth at all costs,” the ability to get customers’ cash in the door before paying suppliers is a major competitive advantage.