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)
    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 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 to pay its suppliers. The cash conversion cycle, or CCC, equals DIO + DSO-DPO.

With smartphones gaining in popularity and power, it's a bit surprising to find that these handset makers aren't more popular.

Company

DSO

+

DIO

-

DPO

=

CCC

CAPS Rating
(out of 5)

Apple (NASDAQ:AAPL)

20.1

+

5.6

-

74.0

=

(48.3)

***

Palm (NASDAQ:PALM)

40.5

+

15.8

-

58.8

=

(2.5)

*

Nokia (NYSE:NOK)

57.2

+

27.0

-

54.6

=

29.6

****

Motorola (NYSE:MOT)

59.0

+

35.7

-

47.0

=

47.7

**

Research In Motion (NASDAQ:RIMM)

53.0

+

45.1

-

26.1

=

72.0

**

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

Each week, we look for the top companies in different industries that make fast cash. It seems that the 65,000 participants in the Motley Fool CAPS investor intelligence database haven't rung up much support for these particular firms; almost all rate a middling three stars or less. Of course, this isn't a list of stocks to buy or sell -- just a jumping-off point for further research.

Not every company that makes fast cash will excel. We generally only want the best-regarded firms in the opinion of our CAPS -- the four- and five-star stocks that the majority of CAPS investors believe will outperform the S&P 500. Lacking such a candidate this week, we'll dial up the speediest of the bunch with a closer look at Apple. The Mac daddy plays second fiddle to Nokia only in consideration of growth potential.

Biting into Apple
Despite the enormous popularity of the iPhone, Apple still has to consider the possibility that a rival will come out with something better. Verizon (NYSE:VZ) says its Voyager smartphone will "kill the iPhone." Yet its ability to top its competitors at all stages of its cycle leaves little doubt that Apple can quickly exchange raw materials for cash.

With more than 9,300 investors voting on Apple, it's the most-rated stock on Motley Fool CAPS. Even with the diverse set of opinions a company like Apple attracts, 90% of those voters nonetheless believe it will outperform the market. Roughly 97% of All-Stars -- CAPS investors who consistently outperform their peers over time -- agree.

Top-rated All-Star jimmychen17 summarizes the reasons to expect continued outperformance: hot products, cool fundamentals, and competitors that haven't yet figured out a way to match it.

Increasing market share in a tough consumer electronics market with its innovative product. The key is innovation and the consumers equate Apple product with the "it" products. That's a great reason to buy this stock. Also, it doesn't hurt to have strong cash level and great product margin. Lastly, 2007 2nd Qtr Revenue & Earning is higher than the same measures for Xmas 2005!!! That's insane!!! That goes to show how fast the company is growing. Earning growth rate (70) is much higher than P/E (45), and thus, I think this stock CAN keep climbing.

Go green!
So which company will continue to dial up dollars? At Motley Fool CAPS, you can tell us your picks as you work with thousands of your fellow Foolish investors to uncover the best stocks and convert your money into cash profits. Best of all, it's absolutely free. Get started today!

Palm is a recommendation of Motley Fool Stock Advisor. Dial in for a 30-day free trial to the Gardner brothers' flagship investing service, which is beating the market by 45 percentage points.

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.