Cash conversion cycle
factor.formula
Cash conversion cycle = Inventory turnover days + Accounts receivable turnover days - Accounts payable turnover days
Accounts receivable turnover days = 360 / accounts receivable turnover rate
Accounts payable turnover days = 360 / accounts payable turnover ratio
Inventory turnover days = 360 / inventory turnover rate
In the formula, the turnover days are calculated based on 360 days. For some markets that use the calendar year, 365 days can be used as the calculation basis. When calculating the turnover rate, the average balance of a specific period is usually used (for example, the average of the balance at the beginning and end of the year), and the sales cost or revenue of the period is used as the numerator.
Accounts Receivable Turnover Rate
Accounts Payable Turnover Ratio
Inventory Turnover Rate
factor.explanation
The cash conversion cycle (CCC) is a time indicator that measures the entire cash flow cycle of an enterprise from investing cash to purchase raw materials to finally receiving sales revenue. It comprehensively considers the efficiency of the enterprise's inventory management, accounts receivable management and accounts payable management. A negative cash conversion cycle indicates that the enterprise has strong capital turnover ability and operational efficiency, and can more effectively use the credit of suppliers to support its own operations without having to occupy a large amount of its own funds for a long time.