When judging a company's prospects, how quickly it turns cash outflows into cash inflows can be just as important as how much profit it's booking in the accounting fantasy world we call "earnings." This is one of the first metrics I check when I'm hunting for the market's best stocks. Today, we'll see how it applies to Rush Enterprises (NAS: RUSH.B) .
To calculate the cash conversion cycle, add days inventory outstanding to days sales outstanding, then subtract days payable outstanding. Like golf, the lower your score here, the better. The CCC figure for Rush Enterprises for the trailing 12 months is 104.3.
Because of the seasonality in some businesses, the CCC for the TTM period may not be strictly comparable to the fiscal-year periods shown in the chart. Even the steadiest-looking businesses on an annual basis will experience some quarterly fluctuations in the CCC. To get an understanding of the usual ebb and flow at Rush Enterprises, consult the quarterly-period chart below.
On a 12-month basis, the trend at Rush Enterprises looks less than great. At 104.3 days, it is 8.4 days worse than the five-year average of 96. days. The biggest contributor to that degradation was DIO, which worsened 9.6 days when compared to the five-year average.
Considering the numbers on a quarterly basis, the CCC trend at Rush Enterprises looks OK. At 96.8 days, it is little changed from the average of the past eight quarters. Investors will want to keep an eye on this for the future to make sure it doesn't stray too far in the wrong direction. With both 12-month and quarterly CCC running worse than average, Rush Enterprises gets low marks in this cash-conversion checkup.
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The article Why Rush Enterprises's Earnings May Be Less Than Awesome originally appeared on Fool.com.