Enter the days of inventory outstanding, days of sales outstanding, and days payables outstanding to determine the cash conversion lifecycle.
- Days Sales Outstanding (DSO) Formula + Calculator
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Cash Conversion Cycle Formula
The following formula is used to calculate the cash conversion lifecycle.
CCC= DIO + DSO – DPO
- Where CC is the cash conversion time
- DIO is the days of inventory outstanding
- DSO is the days sales outstanding
- DPO is the days payables outstanding
Cash Conversion Cycle Definition
A cash conversion cycle is defined as the time it takes money spent to convert into a cash flow from sales.
Cash Conversion Cycle Example
How to calculate cash conversion cycle?
- First, determine the days of inventory outstanding.
This is the average number of days a produced good stays in inventory on average before being sold.
- Next, determine the days sales outstanding.
This is the average number of days it takes a company to collect on previously sold goods or services.
- Next, determine the days payable outstanding.
This is the number of days it takes the company to pay its own obligations associated with the resources used to produce the good.
- Finally, calculate the cash conversion time.
Using the formula you can calculate the cash conversion cycle.
A cash conversion cycle is a measure of the time in days that it takes for a company to convert it’s money spent on resources into cash flows from sales.
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