Cash Conversion Cycle
Definition
The number of days it takes a business to turn cash spent on inventory back into cash from customers. It combines days inventory outstanding and days sales outstanding, less days payable outstanding.
Formula
CCC = DIO + DSO − DPO
Why it matters
A shorter cash conversion cycle frees up working capital. Tracking it shows whether changes to collections, payment terms or stock levels are actually helping cash flow.
Related Terms in Financial Analysis
Days Inventory Outstanding (DIO)
The average number of days a business holds inventory before selling it. A lower DIO means stock moves quickly; a higher DIO ties up cash in unsold goods.
Gearing Ratio
A measure of the proportion of a business funded by debt relative to equity, indicating financial leverage. High gearing increases both potential returns and risk.
Price-to-Earnings Ratio (P/E)
The ratio of a company's share price to its earnings per share, showing how much investors pay for each unit of profit. It is a common valuation yardstick, though it varies widely by sector and growth expectations.
Earnings Per Share (EPS)
A company's net profit divided by the number of shares outstanding, showing profit attributable to each share. It is a core input to valuation measures such as the P/E ratio.
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