cash conversion cycle

Definition

The cash conversion cycle (CCC) measures the number of days it takes for a company to convert resource outlays into cash receipts from sales. It combines three metrics: days inventory outstanding (DIO), days sales outstanding (DSO), and days payables outstanding (DPO). Calculated as DIO + DSO – DPO, a shorter cycle indicates that capital is tied up for fewer days, improving liquidity and reducing reliance on external financing. A longer cycle suggests inefficiencies in inventory management, receivables collection, or payables payment. Companies benchmark CCC against peers to identify areas for improvement, such as speeding up collections, optimizing stock levels, or extending payables without damaging supplier relationships. CCC is a key tool for managing working capital.

See also