Reading the accounts
Cash conversion cycle
How many days pass between paying for inventory and collecting cash from the customer.
How it works
It combines how long inventory sits, how long customers take to pay, and how long the company takes to pay suppliers. A shorter cycle means less cash tied up in operating the business.
A negative cycle means the company is funded by its suppliers and customers, which is exceptionally efficient.
Formula
CCC = days inventory outstanding + days sales outstanding − days payables outstandingRelated terms
- Working capitalThe money tied up in day-to-day operations: inventory and money owed to you, less money you owe.
- InventoryGoods a company is holding to sell, valued on the balance sheet at cost or market value, whichever is lower.
- Accounts receivableMoney customers owe for goods or services already delivered.
More in Reading the accounts
- Cash flow statement
- Cash burn
- Cost of goods sold
- Capital expenditure
- Deferred revenue
- Breakeven
- Depreciation and amortisation
- Book value
All 51 Reading the accounts terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.