Cash Conversion Cycle

by Craig Anthony

0 min read

The cash conversion cycle expresses the length of time, in days, that it takes for a company to convert its resource inputs into cash flow. A low cash conversion cycle is desirable, because it means that the company can quickly convert inputs into cash. The sooner that a company can convert its inputs to cash, the more efficient the company is at production, sales and collection of receivables. The cash conversion cycle is often used to judge management’s effectiveness.To calculate the cash conversion cycle, add the days inventory outstanding to the days sales outstanding, and subtract the days payables outstanding.

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