Cash Conversion Cycle
The cash conversion cycle (CCC) is a metric that measures the amount of time it takes a company to convert its investments in inventory and other resources into cash flows. It is a measure of a company’s liquidity and efficiency, and is used to assess the company’s ability to pay its short-term debts and fund operations. The CCC is calculated by subtracting the number of days it takes to collect accounts receivable from the number of days it takes to pay accounts payable, and then adding the number of days of inventory on hand.
History of the Cash Conversion Cycle
The concept of the cash conversion cycle was first introduced by economist J.M. Clark in the 1930s. Clark’s theory was that the time it takes to convert resources into cash flows is an important factor in determining a company’s profitability. The CCC has since become a widely used metric for assessing a company’s liquidity and efficiency.
Table of Comparisons
| Company | Cash Conversion Cycle (Days) |
|---|---|
| Company A | 45 |
| Company B | 60 |
| Company C | 75 |
Summary
The cash conversion cycle is a metric that measures the amount of time it takes a company to convert its investments in inventory and other resources into cash flows. It is a measure of a company’s liquidity and efficiency, and is used to assess the company’s ability to pay its short-term debts and fund operations. For more information about the cash conversion cycle, you can visit websites such as Investopedia, The Balance, and AccountingTools.
See Also
- Working Capital
- Inventory Turnover
- Accounts Receivable Turnover
- Days Sales Outstanding
- Days Payable Outstanding
- Gross Profit Margin
- Operating Cycle
- Return on Investment
- Return on Assets
- Return on Equity
