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While Kohl's cycle is 92 days, Limited Brand's cycle is only 37. Why does this matter? Because working capital must be financed somehow, with either debt or equity, and both companies use debt. Kohl's cost of sales (COGS) is about $6.887 billion per year, or almost $18.9 million per day ($6.887 billion/365 days). Because Kohl's cycle is 92 days, it must finance--that is, fund its working capital needs--to the tune of about $1.7+ billion per year ($18.9 million x 92 days). If interest on its debt is 5%, then the cost of this financing is about $86.8 million ($1.7 billion x 5%) per year. However, if, hypothetically, Kohl's were able to reduce its cash conversion cycle to 37 days--the length of Limited Brands' cycle--its cost of financing would drop to
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