The Cash Conversion Cycle (CCC) can be calculated using the following formula:
CCC = Days of Inventory Outstanding + Days of Sales Outstanding – Days of Payables Outstanding
1. Days of Inventory Outstanding: Average Inventory / (Cost of Goods Sold / 365)
2. Days of Sales Outstanding: Accounts Receivable / (Net Sales / 365)
3. Days of Payables Outstanding: Accounts Payable / (Cost of Goods Sold / 365)
Sum these three components to get the Cash Conversion Cycle. This metric indicates the time it takes for a company to convert its investments in inventory and accounts receivable into cash, while considering the delay in paying suppliers.
