The cash conversion cycle (CCC) is a formula in management accounting that measures how efficiently a company's managers are managing its working capital. The CCC measures the length of time between a company's purchase of 澳洲幸运5官方开奖结果体彩网:inventory and the receipts of cash from its accounts receivable. It's used by management to see how long a company's cash remains tied up in its operations.

Cash Conversion Cycle (CCC) Formula

The formula for calculating the cash conversion cycle 🍷is:

$\begin{aligned} &\text{CCC} = \text{DIO} + \text{DSO} - \text{DPO} \\ &\textbf{where:} \\ &\text{CCC} = \text{Cash conversion cycle} \\ &\text{DIO} = \text{Days inventory outstanding, the average number} \\ &\text{of days the company holds its inventory before selling it} \\ &\text{DSO} = \text{Days sales outstanding, the number of days of} \\ &\text{average sales the company currently has outstanding} \\ &\text{DPO} = \text{Days payable outstanding, the ratio indicating} \\ &\text{an average number of days the company takes to pay}\\ &\text{its bills} \\ \end{aligned}$​CCC=DIO+DSO−DPOwhere:CCC=Cash conversion cycleDIO=Days inve𒁏ntory outstanding, the average numberof days the company holds its&nbsᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚp;inventory&nb🦹sp;before selling itDSO=Days sales outstanding,&💟nbsp;the numbeജr of days ofaverage sales the company currently has ou🦹tstandingDPO=Days payable&nbꦓsp;outstanding, the ratio indicatingan average number of da♋ys&nbs🎶p;the company takes to payits bills​

Why t꧅he Cash Conversion Cycle (CCC) Matters😼 to Management

When a company—or its management—takes an extended period of time to collect outstanding accounts rece𝕴ivable, has too much inve♑ntory on hand, or pays its expenses too quickly, it lengthens the CCC.

A longer CCC means it takes a longer t꧑ime to generate cash, which can mean insolvency for small companies.

When a company collects outstanding payments quickly, correctly forecasts inventory needs, or pays it♍s bills slowly, it shortens the CCC. A shorter CCC means the company is healthier. Addi⛦tional money can then be used to make additional purchases or pay down outstanding debt.

When a manager has to pay its suppliers quickly, it's known as a pull on liquidity, which is bad for the company. When a manager cannot collect payments quickly enough, it's known as a drag on liquidity, which is also bad for the company.