How to Calculate Cash Conversion Cycle
What is Cash Conversion Cycle?
Measures days from paying suppliers to collecting from customers. Shows how long cash is tied up in operations.
Formula
CCC = DIO + DSO - DPO
- CCC
- DIO + DSO - DPO — DIO + DSO - DPO
- DIO
- DIO value — Variable used in the calculation
- DSO
- DSO value — Variable used in the calculation
- DPO
- DPO value — Variable used in the calculation
Step-by-Step Guide
- 1Days Inventory Outstanding (DIO): days before inventory sells
- 2Days Sales Outstanding (DSO): days to collect from customers
- 3Days Payable Outstanding (DPO): days before paying suppliers
- 4CCC = DIO + DSO - DPO
Worked Examples
Input
30 DIO, 45 DSO
Result
60 days
Common Mistakes to Avoid
- ✕Not separating types of inventory (raw, WIP, finished)
- ✕Assuming CCC remains static as business grows
Frequently Asked Questions
What's a healthy CCC?
Shorter is better; negative means you collect before paying (ideal); 30-60 days typical, >90 problematic.
How do I reduce CCC?
Reduce inventory (faster turnover), collect faster (early payment discounts), extend payables (negotiate terms).
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