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What is the cash conversion cycle?


The cash conversion cycle (CCC) is the cycle from the conversion of cash into inventory, from inventory into accounts receivable, and then back into cash:

Days Inventory Outstanding + Days Sales OutstandingDays Payable Outstanding


  • Days inventory outstanding (DIO) – Shows how many days it takes a firm to sell its entire inventory:

Average inventory/COGS per Day

  • Days sales outstanding (DSO) – Measures the number of days a firm needs in order to collect on its sales:

Average Accounts Receivable/Revenue per Day

  • Days payable outstanding (DPO) – Shows the number of days it takes a firm to pay its own accounts payable:

Average Accounts Payable/COGS per Day

The cash conversion cycle is one of the most important metrics when conducting a cash flow analysis of a company.  A firm should not tie up more capital than necessary in inventories, since the faster the goods can be turned over, the greater the profit on the capital invested.   A relatively low CCC discloses a favorable condition and indicate the capacity of management to turnover inventory quickly.

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