๐Ÿ’ฐCash Conversion Cycle

Answers how long it takes your company to convert investments in inventory into cash flows from Sales.

Formula

The cash conversion cycle (CCC) is a metric that measures the number of days a company takes to convert the stock and inventory investments theyโ€™ve made into revenue from sales. The point is to measure the time between your investment (in inventory) and your return on that investment (through sales). This measurement can give you a sense of the health of your business and help you measure risk.

If the cash conversion cycle is shortening, this is a good sign as your business is leaving less and less cash tied up somewhere as you grow. It is a negative sign if the cash conversion cycle of your company is increasing or getting slower because it means more of your cash is being tied up for longer.

CCC = Days Inventory Outstanding (DIO) + Days Sales Outstanding (DSO) - Days Payable Outstanding (DPO)

DIO = (Total Inventory: Finished Goods / Cost of Goods Sold) * Number of Days

DSO = (Accounts Receivable / Net Revenue) * Number of Days

DPO = (Accounts Payable / Cost of Goods Sold) * Number of Days

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