Cash Conversion Cycle

Working Capital is raising its profile more than ever thanks to the diminishing availability of cash from the markets, but it has been a noteworthy element of Amazon's business for some time. Amazon focuses on three financial measures - maximising profit dollars [not margin, which is usually expressed as a percentage], optimising free cash flow [at Amazon, expressed as free cash flow per share], and increasing ROIC [Return on Invested Capital].

During his presentation at Barclays Capital Global Technology Conference in San Francisco back in December 2008, Tom Szkutak, Amazon's CFO, put up a Cash Conversion Cycle chart. This is sometimes known as a measure of the Days of Working Capital, while Amazon calls it the Operating Cycle. It is calculated by adding together inventory days and receivables days, and then deducting payables days. For Amazon, as of 30th September 2008, the results were as follows: Inventory Days - 29, Receivables Days - 5, and Payables Days - 55. Roll the numbers and you get a positive cash conversion cycle of 21 days - that means, in an average cycle, cash comes in three weeks before it has to go out.