Every firm requires certain amount of time to convert its resources in to cash flow. The cycle achieves and important goal of determining the time taken by each unit of input all the way to the account receivables in the form of profit. In profit oriented entities therefore, the finical stability of a firm will be determined by the amount of assets dedicated to the business progressions that the company is involved in. the prime source of financial resources in a profit oriented entity is the ability of such a firm to accrue profit from its daily conversion of the company resources in to cash flow. Profit oriented firms acquire stock on credit leading to accounts payable that is settled by the account payables. The cash conversion cycle in this case therefore refers to the time taken to recover from a debt owed to suppliers through selling company products to prospective clients.
In non-profit making entities, operations are not purely based on conversion of resources in to profits. Non-profit oriented entities acquire their funding from government, well-wishers, grant and other sources that are not purely business structured. To measure the effectiveness of the management of a non-profit entity, the success of the projects undersigned to this entity will help in designing the cash conversion cycle in this case. The time taken to accomplish a certain project and the degree of success of the project as a subject of the funding is used to appraise the effectiveness of the organization. The cash conversion cycle of profit and non-profit making entities will therefore be appraised using different variables. It is however very important to note that in either profit oriented or non-profit oriented entities, cash conversion cycle approach play an irreplaceable role in evaluating the success of the firm.
Investopedia. (n.d.). Cash conversion cycle – CCC.
Web <http://www.investopedia.com/terms/c/cashconversioncycle.asp>. Accessed 16th March 2016.
Corporate finance. (2008).
Web< http://bookboon.com/en/corporate-finance-ebook>. Accessed 16th March 2016.