The cash conversion cycle (CCC) is a metric that expresses the length of time (in days) that it takes for a company to convert its investments in inventory and other resources into cash flows from sales.
This metric takes into account the time needed to sell its inventory, the time required to collect receivables, and the time the company is allowed to pay its bills without incurring any penalties.
CCC will differ by industry sector based on the nature of business operations.
The Formula for CCC
Since CCC involves calculating the net aggregate time involved across the above three stages of the cash conversion lifecycle, the mathematical formula for CCC is represented as:
DIO=Days of inventory outstanding
(also known as days sales of inventory)
DSO=Days sales outstanding
DPO=Days payables outstanding