The Cash Conversion Cycle (2024)

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FAQs

What is the cash conversion cycle? ›

The cash conversion cycle (CCC) – also known as the cash cycle – is a metric expressing how many days it takes a company to convert the cash it spends on inventory back into cash by selling its product.

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What is a cash conversion cycle quizlet? ›

Cash conversion cycle. the length of time funds are tied up in working capital, or the length of time between paying for working capital and collecting cash from the sale of the working capital and collecting cash from the sale of the working capital.

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Which is the correct calculation of the cash conversion cycle? ›

Cash Conversion Cycle = DIO + DSO – DPO

Where: DIO stands for Days Inventory Outstanding. DSO stands for Days Sales Outstanding. DPO stands for Days Payable Outstanding.

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Do you want the cash conversion cycle to be long or short Why? ›

The shorter the cash cycle, the better, as it indicates less time that cash is bound in accounts receivable or inventory. The cash conversion cycle attempts to measure how long each net input dollar is tied up in the production and sales process before it gets converted into cash received.

Is Short cash conversion cycle good? ›

The short cash conversion cycle is associated with better cash flow management and financial performance. Service providers and online businesses can even achieve a negative cash conversion cycle, meaning their capital isn't tied up in physical inventory at all.

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What is a good cash conversion cycle number? ›

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Is a negative cash conversion cycle good or bad? ›

This is a sign of good financial health, management, and profitability as the business can use its suppliers' money to generate cash flow. For example, large retailers such as Amazon often have negative CCCs as they can take advantage of the suppliers' credit and turn their inventory quickly.

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What is the cash conversion cycle for Walmart? ›

Walmart's cash conversion cycle decreased in 2021 (1 days, -34.3%) and 2024 (5 days, -21.7%) and increased in 2020 (2 days, +6.0%), 2022 (3 days, +175.8%), and 2023 (6 days, +86.2%).

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What is a good cash conversion ratio? ›

What Is Considered a "Good" Cash Conversion Ratio? Depending on the particular industry your enterprise is in, a good CCR will differ. In general, however, a CCR of 1 indicates that a business efficiently converts every dollar of net income to cash.

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