Definition
Cash Conversion Cycle
The cash conversion cycle measures how many days it takes a company to turn investments in inventory and receivables back into cash.
CCC = Days Inventory + Days Receivables minus Days Payables. It shows how long cash is tied up in the operating cycle. A shorter (or negative) CCC means the company collects from customers and turns inventory quickly while taking longer to pay suppliers, a sign of operating efficiency and pricing power.
Negative CCC businesses (some retailers, FMCG, platforms) effectively run on suppliers' money. A lengthening CCC can signal demand or collection problems. It is a key lens for judging the quality of a company's working capital management.
Related terms
- Current RatioThe current ratio measures a company's ability to pay short-term obligations using its short-term assets.
- Free Cash FlowFree cash flow (FCF) is the cash a company has left after paying operating expenses and capital expenditure, available to reward investors or grow.
- Working CapitalWorking capital is the money a company needs to fund day-to-day operations, calculated as current assets minus current liabilities.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.