- 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.