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Connaught collapse

It is a pity that the Times is now subscription only because there was a very strong article on the reasons behind the collapse of Connaught last week. This has brought about a lot of comment but what has been highlighted is the apparent lack of internal costing controls and cashflow management

I am sounding more like an accountant every day….

But this did highlight for me one key inidcator. The Cash conversion KPI. That is the % of profits that are converted into actual cash at the year end.

Connaught converted 55% of its profits into cash and was in itself a warning sign that the management was not all it could have been. it makes perfect sense that a well run business will be converting its profits into cash quickly, but at the same time this is a stat which is best measured over a period of time rather than on a monthly or even quaterly basis. Calculated monthly, a sudden upsurge in sales can be very difficult (impossible really) to convert into cash within 30 days. And that knocks the KPI sideways

Are you still awake?

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