Cash Conversion Cycle

Tacettin İKİZ · April 03, 2025, 08:40:48 AM

Cash Conversion Cycle

The cash conversion cycle measures the time to convert inventory purchases into cash from sales.

Visual Flow:

Code Select

Cash → Materials/Services → Accounts Payable → Pay Accounts Payable → Sales → Accounts Receivable → Cash

Cash Out:

Materials/Services
Accounts Payable
Pay Accounts Payable

Cash In:

Sales
Accounts Receivable
Cash (Received)

Cash Conversion Cycle Formula:

Code Select

CCC = DIO + DSO - DPO

Definitions:

QuoteDIO - Days Inventory Outstanding
= (Inventory / Cost of Goods Sold) × 365

DSO - Days Sales Outstanding
= (Accounts Receivable / Revenue) × 365

DPO - Days Payable Outstanding
= (Accounts Payable / Cost of Goods Sold) × 365

Example – Cable Factory:

Code Select

DIO = 40 days
DSO = 30 days
DPO = 50 days

CCC = 40 + 30 - 50 = [b]20 days[/b]

It takes 20 days to turn your outlay into incoming cash – an efficient cycle.

News:

Cash Conversion Cycle

Tacettin İKİZ