Operations
Cash conversion cycle (CCC)
How many days cash is tied up between paying suppliers and collecting from customers.
Facts checked against sources onWhat does Cash conversion cycle (CCC) mean?
The cash conversion cycle measures how long a business waits between paying cash out for inventory and getting cash back from customers. CCC = days inventory outstanding (DIO) + days sales outstanding (DSO) minus days payables outstanding (DPO). Example: stock sits for 60 days, customers pay in 45 days, and the company pays its suppliers in 30 days, so CCC = 60 + 45 minus 30 = 75 days. A shorter cycle frees cash. Some businesses, such as many supermarkets and marketplaces, have a negative cycle: they collect from shoppers before they pay suppliers, so growth brings in cash instead of using it.
Where does it come up in case interview prep?
- Supply chains explainedLesson in How industries work: the toolkit
- Working capital in days: receivables, inventory, payables and the cash conversion cycleLesson in Reading a business through its numbers: the three statements, cash and value
- Using this in a case: what to ask, what to calculate, what to sayLesson in Reading a business through its numbers: the three statements, cash and value
Related terms
- Working capitalCash tied up in running the business day to day.
- Inventory turnoverHow many times stock is sold and replaced in a year.
- Free cash flowCash from operations minus capital expenditure.
- BottleneckThe slowest step, which limits the output of the whole process.
- Capacity utilizationActual output as a share of the most that could be produced.
- Little's lawItems in a system = arrival rate × time each item spends in it.
- Landed costThe full cost of getting a product to your door, not just its purchase price.
- Service level (fill rate and OTIF)How reliably a supplier delivers what was ordered, measured by fill rate and on time in full.
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