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. There are three components of the cycle:

• 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 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.

Here's a look at how a number of the best-known fashion retailers get the skinny on turning cloth into cash.

Company

DSO

+

DIO

-

DPO

=

CCC

CAPS Rating (out of 5)

Wet Seal (NASDAQ:WTSLA)

1.6

+

33.2

-

23.1

=

11.7

**

bebe (NASDAQ:BEBE)

4.2

+

45.6

-

29.3

=

20.5

***

Gap (NYSE:GPS)

0.0

+

66.1

-

41.3

=

24.8

*

Chicos FAS (NYSE:CHS)

1.8

+

68.4

-

35.5

=

34.7

***

Abercrombie & Fitch (NYSE:ANF)

5.4

+

120.5

-

32.6

=

93.3

***

Source: CapitalIQ, 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. None of the companies garners higher than a three-star rating.

Not every company that makes fast cash will excel. We generally only want those firms that the CAPS community considers the best. Four- and five-star stocks have earned the vast majority of CAPS investors' confidence in their ability to outperform the S&P 500. But beggars can't be choosers, so we'll look at those that got three stars. 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 lowest-rated companies also have some of the fastest conversion cycles. But the difference between bebe and Abercrombie & Fitch seems striking. Although the latter has improved its cycle by nearly 10% since it was last profiled, that cycle's still more than four times longer than bebe's.

I recently took a look at some trends I thought might affect future performance for bebe, but with Abercrombie's inventories so seemingly skewed, we need to look at the financial statements to find a possible cause. Abercrombie's principal selling seasons are the spring and fall, and it reduces its inventories at the end of the first and third quarters. We're seeing a buildup in preparation for A&F's top seasons. Yet while its cash conversion cycle is lower at other times in the year, it still remains higher than its rivals, which means it's still slow at turning its clothes into cash.