5 More 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. 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 the money 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 stays available for the company to spend on things it needs, 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 communications equipment manufacturers translate products into cash.

Each week, we look for the top companies in different industries that make fast cash, and this particular group doesn't seem to have been discounted by the more than 59,000 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. 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.

It probably shouldn't surprise us that top-rated Nokia -- garnering four stars from CAPS players -- also has the fastest conversion cycle of the group. As the leader in cell phone manufacturing, it is able to offer competitive pricing that rivals such as Motorola find hard to match, leading it to increase its 36% market share. It's estimated Nokia has sold about 100 million phones worldwide this past quarter.

• It was last October when CAPS All-Star WickedSmaht noted Nokia's premier position. "Nokia is still the world leader in mobile phones, with the leverage and scale to cut prices when necessary to protect their market share. They have started to take a dominant position in emerging markets like India and China, despite intense local competition. They also have a highly profitable infrastructure division. The management team is solid and shareholder-friendly. Overall, I expect them to continue to provide great gains for several years."
  
  
• More recently, CAPS investor csguernsey talked about the expectation that those business factors will finally work themselves into the stock price. "The growth of the emerging economies will demand increasing communications capabilities and in most of the developing world that means wireless. That is a fundamental driver of growth in the sector, NOK provides a well-established leader in the field and (after considering cash per share) is trading at a fair valuation. It has an excellent balance sheet. Recently it has begun to capture market share. If this trend continues I expect a favorable result after several years of underperformance."

So, is the market getting its signals crossed or do we have five bars of signal strength? 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!

Nokia was a stumbling stock for years before getting its act together. Motley Fool Inside Value looks for similar values and you can access all of the market-beating recommendations with a 30-day free trial subscription. 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.