Enter the days of inventory outstanding, days of sales outstanding, and days payables outstanding to determine the cash conversion lifecycle.
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.