Series 79: 3.1.5. Cash Conversion Cycle

3.1.5. Cash Conversion Cycle

The cash conversion cycle (CCC) measures how quickly a business turns expenditures for raw inputs into cash received. The CCC is the number of days between the disbursement of cash for purchase of resalable goods (or raw inputs) and the collection of cash from customers for those same goods (or for finished goods produced using raw inputs). In other words, the CCC represents the length of time that working capital is unavailable to the business for other uses. As such, the cash conversion cycle represents an important measure of liquidity.

The cash conversion cycle is also a useful metric for measuring management effectiveness. A well-managed company which sells products that appeal to consumers, which manages inventory effectively, and which collects