Cash Conversion Cycle (CCC)

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Description of Cash Conversion Cycle. Explanation.

 

Cash Conversion Cycle (CCC)

Definition Cash Conversion Cycle (CCC). Description


The Cash Conversion Cycle (CCC) is a financial performance ratio, which represents the length of time that it takes a company to convert resource inputs into cash flows.


The metric is in essence the amount of time a company needs to sell its inventories and to collect its receivables, as well as the amount of time a company is granted to pay its suppliers without incurring penalties, and as such, focuses on the length of time that funds are tied up in the business cycle.


Although large companies tend to have shorter CCC periods than small businesses due to greater negotiation power with customers and suppliers, it can be said that the shorter the cycle, the less time funds are tied up in the business process, and thus the better it is for a company's bottom line.


Calculation of Cash Conversion Cycle. Formula

The CCC ratio is calculated as follows:


CCC = Days Inventory Outstanding (DIO) + Days Sales Outstanding (DSO) - Days Payable Outstanding (DPO).


The Cash Conversion Cycle (CCC) is also known in short as Cash Cycle.


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