Free Cash Conversion Cycle Training Video

Free Cash Conversion Cycle Training Video

Other than some minor editing below for clarity, this is the transcript from the beginning of the cash conversion cycle training video which is further below.

Now we’re going to talk about the cash conversion cycle…

Again, this is something we’ve talked about already a little bit and why it’s so important but we’ll continue talking about this here on a preliminary basis.

The first thing I noticed here is the huge massive jump in this number since 2007 from 216 days to 600.3 days in the trailing twelve months or a rise of 64% in that time.

That is scary…

I make notes of everything I do so I don’t have to rely on my memory in the past or in the future when I’m doing my analysis.

I don’t want to rely on any guessing I want to rely on hard facts and what I was thinking as I was researching the company.

We’ve already talked about this a little bit but it such an important concept I’m going to continue going over it again and again.

Hopefully, everything begins to make more sense the more we talk about it and the more you learn about it in future training as well.

This number is one of the most important numbers I look at on preliminary basis like we talked about the other day.


Because with this one number I can tell the company is having a hard time selling its products.

This means it’s taking a long time for them to get paid by customers.

This leads to having a hard time paying suppliers and that their inventory may be overvalued and need to be written down or off at some point.

And this all could affect the company’s balance sheet strength and valuation down the road.

None of these are good.

I can tell this from comparing the first number of days in 2007 to the second number of days in the trailing twelve month period.

In most cases, I go back 5 years but this one is such a huge jump – almost triple – I went back 10 years.


You can watch the full video below…

Or if you’d like to learn more about the Cash Conversion Cycle go to the prior link.

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Which Points Could Be The Sign Of Overvalued Inventory?

Which Points Could Be The Sign Of Overvalued Inventory?

Below is a question I answered on Quora yesterday that I thought would be valuable to share here.  The below answer is unedited except I added some links and pictures for further clarification.

At first glance this seems like it would be something hard to figure out.  But it’s not once you know how interpret three ratios and numbers from the companies financials.

First, go to a site like Morningstar – Independent Investment Research and pull up the balance sheet and key ratios tabs in separate pages.

Go to the key ratios tab.  From here scroll down until you see key ratios and click on the efficiency ratios tab.  Look at the cash conversion cycle over a several years.

If the CCC it rising over the years this could mean the company is having issues selling inventory.  And if they’re having trouble selling inventory it could mean the inventory will need to be written down at some point.  And is overvalued.

To continue your search for overvalued inventory now go to the balance sheet tab you have open.  Look at two things here: Inventory and accounts receivable and the relation in these numbers over time.

As an example, if accounts receivable rises 5% year over year but inventory rises at 15+% year over year this could mean the company is having issues selling inventory i that time.

This scenario is almost always bad news for the company and shareholders unless the company can correct the issues going forward.

Why?  Because this may mean it will have to write some of the inventory down (or off altogether) at some point.  Again, meaning the inventory is overvalued on the balance sheet.

Watching the three above things won’t catch everything.  But its a good start in figuring out if inventory may be overvalued.  And have to be written down or off the balance sheet at some point.

Remembering this one simple rule will help a lot when evaluating companies as well… Accounts receivable and inventory should rise or fall at about the same amount over time.  If they don’t you need to find out why because there could be some serious issues.

What are your thoughts on overvalued inventory and using the cash conversion cycle?  And did I miss anything? Please let me know in the comments below.

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Portfolio Update And Links From Old School Value, Charlie Munger, Greenbackd, and PsychCentral

Today I am going to value the company I have been researching to see if it warrants further research and a full article, I will update you about what I figure out.

I also sold out of my entire position in Vodafone (VOD).  My valuations and brief analysis can be found in this post from last month.

I bought Vodafone before doing valuations of any kind and only minor research and again I paid the price.  I bought at too high of a price in my estimate and it would have been very difficult to make money due to my high cost basis.  In the link above I also give some other reasons why I was thinking about selling, which are ultimately why I decided to sell my entire portion of the company.  I sold my stake in Vodafone up about 2% after commissions.

That brings the cash position in my portfolio up to 17% and for now I am going to hold onto it and will let you know when I redeploy some of the cash I have built up.

To the links.

Two links from Old School Value; the first one is How The Cash Conversion Cycle Can Help You Pick Winners and Losers.  The second gives you 52 Techniques to Spot Fraud.  Both contain extremely important lessons.

How Reading Lights Up Your Mind is from Psych Central about the effects reading has on your brain, very fascinating.

Charlie Munger on Google’s Moat-It’s Huge…Probably Widest He’s Ever Seen is another great post from Greg Speicher’s blog.

Greenbackd on Hunting Endangered Species.  The link contains his 15 page strategy paper on “Hunting Endangered Species: Investing in the Market for Corporate Control.”  The link also contains links to some of his other papers.