5 More Stocks for Fast Cash

We've all heard the mantra "cash is king." But a fistful of dollars today deserves the royal treatment more than a wad of cash down the road. We want our companies turning their products into cash -- fast!

The cash conversion cycle
Enter the cash conversion cycle. It tells us how quickly a company turns cash invested in inventory into cash in the bank after collecting credit sales from customers and paying off its suppliers. The more quickly a company can turn over its inventory, the more efficiently it's managing its assets. There are three components of the cycle, and here's how they operate:

  • Days Inventory Outstanding (DIO)
    Inventory sitting on store shelves or in stockrooms is not doing the company, or the investor, any good. The number of days the inventory sits there measures how quickly management can get those Speedos off the racks and onto the beaches of Malibu. Obviously, lower numbers are better.

    DIO = 365 days/(cost of goods sold/average inventory)
  • Days Sales Outstanding (DSO)
    Outstanding sales are those the company hasn't yet been paid for; they're languishing in accounts receivable. We want our companies to not only make quick sales, but also get paid for them right away. The faster, the better.

    DSO = 365 days/(sales/average accounts receivable)
  • Days Payable Outstanding (DPO)
    While we want customers to pay us quickly, we want to take our sweet time paying our bills. By paying suppliers slowly, cash is available to spend on things we need, like inventory, so we want this number to be higher.

    DPO = 365 days/(cost of goods sold/average accounts payable)

Putting it all together
With the three pieces of the puzzle calculated, we can figure out how long a company is taking to get paid for the products its customers are buying from inventory, minus the number of days it takes it to pay its suppliers. The cash conversion cycle, or CCC, equals DSO + DIO - DPO.

Here's a look at how a number of the best known nutritional supplement makers bulk up their ingredients into a muscle-bound cash cycle.

Company

DSO

+

DIO

-

DPO

=

CCC

CAPS Rating (Out of 5)

Mannatech (NASDAQ:MTEX)

0.5

+

31.7

-

8.4

=

23.8

*

Hansen Natural (NASDAQ:HANS)

34.1

+

53.1

-

44.1

=

43.1

***

USANA (NASDAQ:USNA)

0.0

+

84.2

-

30.2

=

54.0

*

NBTY (NYSE:NTY)

16.4

+

143.6

-

29.9

=

130.1

****

Wyeth (NYSE:WYE)

56.4

+

167.8

-

57.3

=

166.9

***

Source: Capital IQ, a division of Standard & Poor's.

Each week, we look for the top companies in different industries that make fast cash, but the 60,000 participants in the Motley Fool CAPS investor-intelligence database don't seem overly excited about this particular group: Only nutraceutical maker NBTY has garnered a four-star rating.

Not every company that makes fast cash will excel. We want only the firms that the CAPS community considers the best. Four- and five-star stocks are the ones that the vast majority of CAPS investors believe will outperform the S&P 500.

Of course, this isn't a list of stocks to buy or sell -- just a jumping-off point for further research.

Unraveling the strands
Two of the companies with some of the fastest cash conversion cycles are also the lowest rated -- Mannatech and USANA. Perhaps that's not surprising. Both companies operate as network or multilevel marketing companies, which still have something of a stigma attached to them. Despite the still-stellar reputation of Tupperware (NYSE: TUP  ) , which also uses a similar business model, such companies have not been faring well of late. Yet they have also benefited because of their nearly nonexistent receivables: Representatives are required to pay for their products up front, so days sales outstanding is virtually zero.

The difference can be seen in a company such as Wyeth, which relies on a wide distributor network to sell its products here and abroad, but it must also extend credit until the distributors make those sales. Considering that the top three distributors accounted for nearly one-third of the company's revenues in 2006, it's not surprising that its receivables are higher than the rest.

The Foolish advantage
NBTY has won the nod from CAPS investors. The company not only manufactures 90% of the supplements it sells under names such as Nature's Bounty and Solgar, but it also sells them at its Vitamin World stores. It also operates as a direct-response/e-commerce company, selling its wares online.

The company has been able to improve its days sales outstanding for the past few years by improving its collection efforts. Having done so has given NBTY the best DSO numbers for any of the non-MLM companies. However, where it falls down is in its inventories. Since it operates bricks-and-mortar stores, unlike its competition, it needs to have more product on hand. Yet it has also improved its inventory levels since 2005; it's made a concerted effort to reduce them while ensuring that customers are still able to find the products they want on the shelves.

Dozens of CAPS investors have signed off on its market-beating potential, and All-Star players such as jtallenmd see that it has excellent financial ratios: "This stock has a P/E that is commensurate with the industry, excellent margins, excellent ROA, excellent ROE and good cash flow."

Others, such as scar72, see the country's demographics as being one of the primary growth drivers for NBTY.

Bought this baby in 97. Millions of baby boomers not getting younger. What's the first thing retirees do in the morning ... TAKE THEIR VITAMINS! Demographics are on the side of this company. This one is a growth story for years to come.

So which nutraceutical company will be able to supplement investors going forward? Will NBTY continue to profit from an aging population, or will a company such as Mannatech offer more opportunities for outsized growth? Work with thousands of your fellow Foolish investors at Motley Fool CAPS to uncover the best stocks and convert your money into cash profits. It's absolutely free -- get started today!

Put your portfolio in the running for market-beating returns with a 30-day guest past toMotley Fool Income Investor, where Tupperware is a recommendation.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.


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