The cash conversion cycle (CCC) is a financial metric that measures the time it takes for a company to convert its investments in inventory and other resources into cash flow from sales. It is a crucial indicator of a company’s efficiency in managing its working capital. The CCC is calculated by adding the number of days it takes for a company to sell its inventory, the number of days it takes to collect cash from customers after a sale, and subtracting the number of days it takes to pay suppliers for inventory purchases.
The formula to calculate the cash conversion cycle (CCC) is:
\[ CCC = DIO + DSO - DPO \]
Where:
Let's say a company has 30 days of inventory outstanding (DIO), 45 days sales outstanding (DSO), and 20 days payables outstanding (DPO). Using the formula:
\[ CCC = 30 + 45 - 20 = 55 \text{ days} \]
So, the cash conversion cycle (CCC) is 55 days.
