Cash Conversion Cycle (CCC) Calculator
This tool helps finance professionals quickly calculate the Cash Conversion Cycle, an essential metric for managing working capital. Use it to determine how efficiently a company is converting its investments in inventory and other resources into cash flows.
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Data Source and Methodology
All calculations are rigorously based on standard financial metrics. For further reading on Cash Conversion Cycle, refer to the Investopedia article.
The Formula Explained
The Cash Conversion Cycle (CCC) is calculated using the formula:
Glossary of Terms
- DIO: Days Inventory Outstanding - the average number of days that a company holds inventory before selling it.
- DSO: Days Sales Outstanding - the average number of days that it takes to collect payment after a sale.
- DPO: Days Payables Outstanding - the average number of days that a company takes to pay its bills.
- CCC: Cash Conversion Cycle - a metric that expresses the time it takes for a company to convert its investments in inventory into cash flows from sales.
How It Works: A Step-by-Step Example
Suppose a company has a DIO of 30 days, a DSO of 45 days, and a DPO of 20 days. The Cash Conversion Cycle is calculated as follows:
CCC = 30 + 45 - 20 = 55 days
This means it takes the company 55 days to convert its investments into cash.
Frequently Asked Questions (FAQ)
What is the Cash Conversion Cycle?
The Cash Conversion Cycle is a metric that shows the time it takes for a company to convert its investments in inventory into cash flows from sales.
How can a company improve its CCC?
Companies can improve their CCC by reducing the Days Inventory Outstanding (DIO) and Days Sales Outstanding (DSO) and increasing the Days Payables Outstanding (DPO).
Why is CCC important?
A shorter CCC indicates that a company is able to quickly convert its investments into cash, which is beneficial for liquidity and financial health.