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!

How can they do it?
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 cycle's three components 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 ensures there's 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 several of the best-known specialty sports clothing retailers kick their cash cycle into high gear.









CAPS Rating (out of 5)

Under Armour (NYSE:UA)









Columbia Sportswear (NASDAQ:COLM)


















Timberland (NYSE:TBL)









Wolverine World Wide (NYSE:WWW)









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

Each week, we look for the top companies in different industries that make fast cash. This particular group seems to have generated a summer clearance sale with the 60,000 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 -- those rated with four or five stars. The vast majority of CAPS investors believe these firms 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.

CAPS investors seem evenly split on this group, with three of the five companies rated average or below, and two earning top-notch four-star ratings.

Unraveling the strands
Interestingly, the stocks with four-star ratings have both the highest and one of the lowest cash conversions cycles. Let's look more closely at Columbia and Nike to see why -- and where -- they diverge.

At first glance, there's a discrepancy between days in inventory; it looks like Columbia was moving its products much more slowly. Comparing the components of inventory for the sporting goods retailer, we see that there was a 15% decline in raw materials and a 9% decline in work-in-progress ("good" inventory), along with a comparable 9% increase in finished goods ("bad" inventory). So although inventory management is not a problem for Columbia, it suffers in comparison to Nike, which can move its products off the shelves much faster.

The same goes for receivables. Columbia's rose 7% as customer demand for its spring line increased. Once again, while it's not an issue operationally, it lags Nike's nimbler numbers by comparison.

We also note that Nike pays its bills a bit slower than Columbia, undoubtedly reflecting its greater market power. Add all of these together, and we can see that Nike converts its raw goods into cash about a month quicker than Columbia.

In comparison, Under Armour struggled with inventory issues last quarter, brought about by higher customer returns. It also introduced footwear into its product lineup. As a result, Under Armour saw its margins drop by 180 basis points, which undoubtedly contributes to its much lower CAPS rating. Still, by getting paid faster, and paying its bills more slowly, it was still able to turn its products into cash more quickly than Columbia.

The Foolish advantage
Nike has won the heart of CAPS sports fans, but Slappster looks more closely at its fundamentals, and still comes away thinking it's a winner. While the price has appreciated since this investor gave it the checkered flag, the remaining analysis still seems intact:

Sickeningly undervalued at this price. Dominant in [its] industry. Bulletproof brand. Innovator. Huge insider ownership and enviable corporate culture. Rock solid balance sheet. Dividend payer, raiser, and massive share repurchaser. Huge opportunities in emerging markets. The Coca-Cola of sporting goods.

Industry analyst and research firm Netscribes believes that Columbia's reliance on "weather sensitive" product lines held it hostage to fickle weather patterns. However:

COLM's successful effort to shift their product portfolio toward a less weather sensitive sportswear product category has been reflected in the form of sportswear sales contribution exceeding [the] company's most established outwear product category. This increase in sportswear sales was driven by continued growth in the U.S. resulting from a broader assortment of products, competitive pricing and enhanced consumer demand. During the year the company also made acquisitions that opened new distribution channels and marketing strategies, which supported outdoor brands growth.

So which specialty retailer will win the race to the finish line: Columbia or Nike? Or will Under Armour get its inventory issues under control and sprint ahead? 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 a race for market-beating returns with a 30-day guest pass to Motley Fool Hidden Gems, where Columbia Sportswear is a recommendation. Under Armour is a recommendation of Motley Fool Rule Breakers.

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.