Cash conversion cycle

﻿
Cash conversion cycle

Cash conversion cycle or CCC is the time duration in which a firm is able to convert its resources into cash. It is actually the total time period required to first convert resources into inventories, then inventories into finished goods, then goods into sales, and then sales into cash. Here the resource may include raw material, labour, power and fuel, etc.

In other words, it can be defined as the time taken to collect cash from sales after making payments for resources acquired by the firm. It should be noted that in many cases, sales can be made on credit and purchasing of resources also does not immediately require cash payments, so the difference should be taken into account between the actual cash collection and sales/purchasing.

Basic formula

CCC = Inventory conversion period (in days) + Receivables conversion period (in days) – Payables conversion period (in days)

* Inventory conversion period = (Inventory/COGS)*365 or 366 in a leap year
* Receivables conversion period = (Receivables/Sales)*365 or 366 in a leap year
* Payables conversion period = (Payables/COGS)*365 or 366 in a leap year

* Any business selling for cash, such as a supermarket, has no receivables and so has a smaller CCC;
* Non-manufacturing business, such as consultancies, has no inventories and so has a smaller CCC;
* CCC can be negative if a business pays its creditors after it purchases inputs, manufactures goods, sells them, and collects cash;
* CCC is a part of working capital analysis.

Wikimedia Foundation. 2010.

Look at other dictionaries:

• Cash Conversion Cycle — Der Geldumschlag (auch Geldumschlagsdauer, englisch: cash conversion cycle, asset conversion cycle, net operating cycle, working capital cycle oder kurz cash cycle) bezeichnet im betriebswirtschaftlichen Controlling die Dauer der Bindung liquider …   Deutsch Wikipedia

• Cash conversion cycle — The length of time between a firm s purchase of inventory and the receipt of cash from accounts receivable. The New York Times Financial Glossary …   Financial and business terms

• cash conversion cycle — The length of time between a firm s purchase of inventory and the receipt of cash from accounts receivable. Bloomberg Financial Dictionary …   Financial and business terms

• Cash Conversion Cycle - CCC — A metric that expresses the length of time, in days, that it takes for a company to convert resource inputs into cash flows. The cash conversion cycle attempts to measure the amount of time each net input dollar is tied up in the production and… …   Investment dictionary

• Цикл обращения денежных средств (CASH CONVERSION CYCLE, CASH CYCLE, EARNINGS CYCLE)  — Период времени, за который деньги обращаются в запасы, запасы преобразуются в задолженность кредиторов, а затем задолженность кредиторов превращается обратно в деньги …   Словарь терминов по управленческому учету

• cash conversion — ˈcash conˌversion noun [uncountable] MANUFACTURING the process in which a company uses materials that it buys in order to make money from the sale of finished goods: • The cash conversion cycle is the number of days it takes a company to purchase …   Financial and business terms

• cash conversion period — UK US noun [C] (also cash cycle) ACCOUNTING ► the period of time it takes for a company to change the value of materials it has bought into money received by selling the finished products: »The company has a cash conversion period of 81 days …   Financial and business terms

• working capital conversion cycle — An accounting and financial phrase used to describe the dynamics of short term cash flows that occur during the normal operations of a business. The working capital conversion cycle is the circular process of borrowing money first to purchase… …   Financial and business terms

• Cash Flow Loan — Borrowing cash typically to meet day to day operations or acquisitions. Reasons for needing a cash flow loan could be seasonal demand changes, business expansion or changes in the business cycle. Cash flow loans can help in temporary situations,… …   Investment dictionary

• Cash Discount — An incentive that a seller offers to a buyer in return for paying a bill owed before the scheduled due date. The seller will usually reduce the amount owed by the buyer by a small percentage or a set dollar amount. If used properly, cash… …   Investment dictionary