 this section is based upon a very important concept of cash conversion cycle so what is meant by cash conversion cycle when we talk about working capital management then we use the concept of cash conversion cycle because we use cash conversion cycle in number of days and it tells us that you have converted the cash in the inventory and you have sold the inventory you have sold the sales the money received from the sales which you will get in cash how many days it takes to get that cash, to perform this cycle so basically when we look at this particular concept there are certain other terms also that are used to explain this concept of cash conversion cycle which we abbreviate as a triple C we call it net operating cycle we call it cash cycle and we abbreviate it with three C's and what happens is you basically have to take days of inventory outstanding and we abbreviate it as DIO and then you have to take days sales outstanding and we abbreviate it as DSO and you have to add these two and you have to subtract DPO which is the days payable outstanding so days payable outstanding because that is a cash outflow so you will have to subtract that and by adding these two things by adding DIO and CSO you will subtract days payable outstanding so you will have a number of days that will give you the cash conversion cycle this will help you in knowing that in the beginning of the business when you converted it in an inventory in production when you converted it in produced items or you took the things that you made and then sold them in the market so when the cash will come back then the entire process of cash to cash which we are calling as cash conversion cycle takes so many days so we have added days inventory outstanding and days sales outstanding this means that they both are indicating cash inflows and when we have subtracted days payable outstanding so that was linked up with a cash outflow therefore we have subtracted it and basically all these things are going to help you in having an idea of how long it takes any business to convert the inventory in its sales and when we evaluate the overall professional efficiency basis and evaluate the different firms or different companies then we see that the firms are performing in a very bad way that means they are operationally inefficient their cash conversion cycle is 80 days or 80 days longer that means that you have put the money in the inventory and then you have brought back the cash by doing the sales in that the entire process takes more than 80 days or more time period so we call it the worst performing organizations whose cash conversion cycle is 80 days or longer but on the other hand our best performing best operationally performing organizations where our cash conversion cycle it can be of 30 days or even lesser than that so the median cash conversion cycle is more or less worst performing and best performing organizations in between organizations which are neither performing well nor performing badly so on average performance firms the cash conversion cycle is of 45 days so this cash conversion cycle that helps us in assessing how much operationally efficient any firm or any organization and again I have told you that the number of days of cash conversion cycle are telling your performance any firm's operational performance indicates so this means that we should try that our cash conversion cycle becomes smaller so to make it smaller many methods in strategic management have been proposed different planners financial planning have been proposed so what are the ways through which we can reduce the duration of our cash conversion cycle so to reduce its duration the proposed strategies I am going to share with you a few of them you must have heard many organizations are moving on to this concept of lean management lean management means it emphasizes that our leakages or wastages should be less and you should not have inventory should not be withhold should not be streamlined should not be immediately supplied so by doing this wherever your wastage or money is you should cut it so by doing this you have made your operations more efficient so we call it lean management so if you follow lean management so by doing this your cash conversion cycle similarly the days you withhold your inventory obviously the orderer will come the orderer has to pick up the luggage till the time you take it you will not be paid 100% payment will be deferred so whatever termination are there but the payment has reached the inventory the gap you can reduce it so you said as soon as the inventory is ready as soon as you have prepared or ready made and you have to supply it or send it to the buyer so your payment and you have everything ready the gap you will reduce your cash conversion cycle chances are short similarly another option which you can exercise in order to reduce the time duration of cash conversion cycle is that whatever accounts receivable are there you should obtain collect them whatever termination you have defined you have to keep this objective that whoever has to pay immediately pay so your delay and your cash conversion cycle will not be long it will be short you can improve the operational efficiency or your performance of the organization that can be enhanced through these three major points or emphasizing on these three major aspects