.svg)
Cash Conversion Cycle
The time it takes to convert inventory investments into cash from sales, measuring working capital efficiency.
Formula
CCC = DIO + DSO - DPO
Where:
- DIO = Days Inventory Outstanding
- DSO = Days Sales Outstanding
- DPO = Days Payable Outstanding
Definition
What is Cash Conversion Cycle?
CCC measures how long cash is tied up in operations before returning as revenue. It combines inventory, receivables, and payables timing. Shorter cycles mean better cash efficiency.
CCC Components
Days Inventory Outstanding (how long to sell), plus Days Sales Outstanding (how long to collect), minus Days Payable Outstanding (how long before paying suppliers).
Optimizing CCC
Reduce inventory days through better forecasting. Speed collections with better billing. Extend payables where possible without damaging relationships. Negative CCC (like Amazon) means you get paid before paying suppliers.
Example
Ecommerce company metrics:
- DIO: 45 days (inventory sits 45 days)
- DSO: 30 days (customers pay in 30 days)
- DPO: 40 days (pay suppliers in 40 days)
CCC = 45 + 30 - 40 = 35 days
Cash is tied up for 35 days on average. Improving any component helps.
Related Terms
Explore other financial terms and metrics
Get complete financial clarity in under 10 minutes. No more broken spreadsheets, no more QuickBooks chaos—just the insights you need to scale with confidence.
