5 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 faster a company can turn over its inventory, the more efficiently it's managing its assets. Here's how the three components of the cycle 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)
  The company hasn't yet been paid for outstanding sales; 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 available to spend on things it needs, 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 DIO + DSO-DPO.

With oil remaining at premium prices, it's not surprising that these industry-services firms have found a slick way to make quick cash.

Each week, we look for the top companies in different industries that make fast cash. It seems the 65,000 participants in the Motley Fool CAPS investor intelligence database hit a gusher with this group of companies. All of the firms rate highly, and four of them have earned four or five-star ratings.

Not every company that makes fast cash will excel. We generally only want the firms that the CAPS community likes best. The vast majority of CAPS investors believe that such four- and five-star stocks will outperform the S&P 500. Among this week's crop, we'll drill down into top-rated Schlumberger, which also has the quickest cash cycles.

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

Bottling up the profits
Inventory is the key reason why Smith and Baker have dramatically longer cash cycles than Schlumberger. Baker Hughes, for example, needs to supply drill bits and other tangible products to the industry, while Schlumberger simply provides technology and information solutions. It's a much lighter business model. Coupled with its ability to extend payment terms over three months, you have a tough-to-beat cash cycle.

Among the more than 1,200 investors who've cast their votes for Schlumberger, 97% believe it will outperform the market, while 99% of All-Stars -- CAPS investors who consistently outperform their peers over time -- agree.

With demand for oil remaining high, drillers will try to squeeze as much oil from the ground as possible. That means they'll need Schlumberger's services to extract it, which most CAPS investors assume will lead to stellar fundamentals. Top-rated All-Star Genkibro sees the company's sterling financials, and a worldwide need for its services, as a reason for continued outperformance.

Biggest in a sector that is staying strong, with the highest margins and best ROE. International expansion has made it the best positioned to take advantage of whichever national oil company can contract for services. Nice spectrum of seismic work and gear.

Near-$100 oil may become a constant pain for consumers, but it will prove a boon for companies like Schlumberger.

Go green!
So which company will continue to drill for cash? At Motley Fool CAPS, you can share your picks with thousands of your fellow Foolish investors, working together to uncover the best stocks. Best of all, it's absolutely free -- get started today!