All firms follow a \"working capital cycle\" in which they purchase or produce inventory, hold it for a time, and then sell it and receive cash. The is the length of time funds Inventory conversion period + Average collection period - Payables deferral period The is the average time required to convert raw materials into finished goods and then to sell them. It is calculated as follows: Inventory/(Cost of goods sold/365) The is also known as the days' sales outstanding. It is the average length of time required to convert the firm's receivables into cash, that is, to collect cash following a sale. It is calculated as follows: Receivables/(Sales/365) The payables deferral period is the average length of time between the purchase of materials and labor and the payment of cash for them. It is calculated as follows: Payables/(Cost of goods sold/365) If a firm can sell goods faster, collect receivables faster, or defer its payable longer without hurting sales or increasing operating costs, its ] would decline, its interest performance. number