Cash Conversion Cycle Analysis: Best Buy vs. Peers PPT

This PPT slide, part of the 96-slide Applied Strategic Financial Analysis PowerPoint presentation, presents a comparative analysis of the cash conversion cycle for Best Buy and its peers in FY 2001. It highlights Best Buy's superior performance in managing working capital, nearly achieving negative working capital. The chart illustrates 3 key components: Days Receivables, Days Inventory, and Days Payables, each represented by distinct colors.

Best Buy stands out with a remarkably low cash conversion cycle of just 5 days, driven by efficient management of receivables and inventory. The Days Receivables for Best Buy is notably low at 7 days, indicating rapid collection of payments. In contrast, its peers, such as Circuit City and Ultimate Electronics, show significantly longer cycles, with Circuit City at 16 days and Ultimate Electronics at 18 days for receivables.

Days Inventory for Best Buy is also impressive at 44 days, while Circuit City and Ultimate Electronics lag behind at 64 and 41 days, respectively. This suggests that Best Buy is effective in turning over its inventory quickly, minimizing holding costs. The Days Payables for Best Buy is 11 days, which is shorter than the peer average of 28 days, indicating a strategic approach to managing supplier payments.

The overall peer average cash conversion cycle is 88 days, underscoring Best Buy's operational efficiency. This analysis raises critical questions about the financial implications of such performance. Understanding these metrics can provide insights into potential cost savings and cash flow improvements, making it essential for stakeholders considering operational enhancements or investment opportunities.

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