The Cash Conversion Cycle (CCC) formula computes the average days needed for a business to convert its investments in inventory and accounts receivable into cash from sales. This is represented as:
CCC = DIO + DSO – DPO
Where:
– DIO (Days Inventory Outstanding) signifies the average days taken to sell inventory.
– DSO (Days Sales Outstanding) represents the average days to collect accounts receivable.
– DPO (Days Payables Outstanding) symbolizes the average days to settle accounts payable.
The CCC value offers insights into a company’s liquidity and its efficiency in managing working capital.
