6 More Stocks for Fast Cash

We've all heard the mantra, "Cash is king." But that simple phrase doesn't take into consideration that 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 you how quickly a company turns raw materials into products and sales into cash in the bank. The faster 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, a company has more time to use its cash to earn interest, so we want this number to be higher.
    DPO = 365 days/(cost of goods sold/accounts payable)

We don't need an average of our bills outstanding here; we just need to know the ending number.

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.

According to market researchers Great American Group, the U.S. cosmetics and toiletries industry grew 4% in 2006 to more than $34 billion. Here's a pretty look at the beauty and personal-care industry and some of the companies that supply us with the creams, lotions, and notions to keep us looking our best.

Company

DIO

+

DSO

-

DPO

=

CCC

CAPS Rating (out of 5)

Alberto-Culver (NYSE: ACV  )

85.2

+

24.7

-

69.0

=

40.9

***

Proctor & Gamble (NYSE: PG  )

69.9

+

29.6

-

42.2

=

57.3

****

Colgate-Palmolive (NYSE: CL  )

68.4

+

42.2

-

60.5

=

50.1

*****

Chattem (Nasdaq: CHTT  )

116.1

+

60.2

-

45.5

=

130.8

**

Helen of Troy (Nasdaq: HELE  )

160.4

+

64.2

-

37.4

=

187.2

*

Playtex (NYSE: PYX  )

79.0

+

73.0

-

40.4

=

111.6

*****

Each week, we look for the top companies in different industries that make fast cash. This particular group seems to have caught the eye of the 29,000-strong participants in the Motley Fool CAPS investor intelligence database.

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

The Foolish advantage
Of course, this isn't a list of stocks to buy or sell -- just a jumping-off point for further research. There are mixed feelings about a number of the players here, with respected names like Proctor & Gamble and Playtex getting strong investor support, while Helen of Troy, a personal-care products maker that has had mixed results of late, is looked at askance.

While it might raise eyebrows that Alberto-Culver has the ability to lather its creams and conditioners into cash, it probably shouldn't be too surprising that Colgate has one of the best cash conversion cycles, which would be in line with the market power and prowess it possesses.

More than one-quarter of all the CAPS All-Stars -- players who consistently outperform their peers on a regular basis -- think the Motley Fool Inside Value recommendation is as much a portfolio staple as it is a consumer-staple provider.

  • Top-rated CAPS player DatabaseBob, who outranks 99.93% of all other players, notes "In Colgate-Palmolive, you have an internationally diversified maker of household products. This financially rock-solid company pays a dividend above 2% that has been -- and will continue -- growing that dividend at a rate well in excess of inflation. When you approach retirement age (and a lot of baby-boomers are), this company will certainly be on your short list of retirement investments. Are you going to wait for everyone else to get in before you, or are you going to buy this stock now?"
  • Another CAPS All-Star dymaxian agrees. In the race between hare-like growth stocks and slow, steady performers, "This company falls into the 'tortoise' part of the race, but has been winning for decades. They sell the products that never get cut from the budget, no matter what the economy is doing or how much extra cash people have sitting around. They may be growing only slightly faster than the S&P 500, but it's one of the steadiest growth patterns you can find."

So, is Colgate the way to a whiter, mintier portfolio, or is it bound to give you dishpan hands? 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!

Colgate-Palmolive is a recommendation of Motley Fool Inside Value. A 30-day free trial subscription lets you rub in all of the market-beating recommendations. Click here to start yours today.

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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Related Tickers

12/31/1969 7:00 PM
ACV.DL $0.00 Down +0.00 +0.00%
Alberto-Culver Com… CAPS Rating: ***
CHTT.DL $0.00 Down +0.00 +0.00%
Chattem, Inc. CAPS Rating: ****
CL $69.98 Up +0.50 +0.72%
Colgate-Palmolive CAPS Rating: *****
HELE $63.04 Down -0.74 -1.16%
Helen of Troy Limi… CAPS Rating: ****
PG $92.05 Up +0.05 +0.05%
Procter & Gamble CAPS Rating: ****

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