Cash Conversion Cycle
The Cash conversion cycle (CCC), also known as the net operating cycle, tracks cash flow and calculates how fast inventory is selling.
The CCC formula is as follows:
CCC = Days Inventory Outstanding (DIO) + Days Sales Outstanding (DSO) – Days Payable Outstanding (DPO)
A high CCC means the accounts receivables process is slow, while a low CCC indicates an efficient A/R process. Business owners typically aim to have a low cash conversion cycle as it demonstrates healthy cash flow.