Income Statement

Cash Conversion Cycle

Turns the net time capital is tied up between paying, producing, selling and collecting into a read on operating efficiency and liquidity consumption. It shows whether growth is collected, trapped in stock or financed by delaying payments.

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Cash Conversion Cycle

cashConversionCycle · Income Statement
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Definition
Turns the net time capital is tied up between paying, producing, selling and collecting into a read on operating efficiency and liquidity consumption. It shows whether growth is collected, trapped in stock or financed by delaying payments.
Calculation
DSO + days inventory on hand - days payables outstanding.
Uses
Very useful in retail, distribution, industrials, hardware, autos and businesses with inventory or customer credit. Less useful in pure software, advance-payment platforms and financials. Cross-check growth, gross margin, CFO, DSO, DIO, DPO and cash conversion cycle.
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