How fast can you grow your business? This depends on how well you convert your sales into cash-in-hand. Is this conversion slow? You will need cash from other sources to fund your growth in sales volume and pay expenditures. Some expenditures will be for goods and services, others for capital items. The Cash Conversion Cycle assesses how you are going. It is an important metric for fast growing businesses. Blue Belt 

Knowing how your cashflow is going is important.
You need some way of measuring it.

One measurement is the Cash Conversion Cycle (CCC).

This is a single metric condensing the impact of how fast a business can:

1. Convert cash on hand into inventory – incurs accounts payable to suppliers.

2. Sell the new inventory – convert them to accounts receivable from buyers.

3. Recover the money owed from the buyers – the extra inventory from suppliers converts into cash.

CCC is a measure of the effectiveness of a company’s management and the overall health of the company.

Like many metrics, calculating it once will not give you very much information.
The real value will come from calculating it periodically (say each quarter).
Look for any trend up or down.

The formula for calculating CCC is:




Investopedia has an excellent article to further your knowledge on the Cash Conversion Cycle.

The article has detailed examples showing the calculations for CCC=DIO+DSO-DPO

Cash Conversion Cycle CCC – Definition – Reviewed by Adam Hayes – updated June 27 2019

Refer to other articles on improving cashflow – Cashflow menu.

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