How To Compute Cash Conversion Cycle &Example

GO TO MAIN PAGE FOR ALL TOPICS COVERED UNDER CASH CONVERSION CYCLE/CASH OPERATING CYCLE

There are few ways of computing the components of the Cash Conversion Cycle.

One way is to use the exhaustion method. (Refer to my earlier article on this). This is mainly for internal use for management reporting.

There is another common way which is illustrated as below:
Illustration:
The financials are for Quarterly Results:
DSO= (AR/Sales) x 90 days,
DIO=  (INV/COS) x 90  days,
DPO= ( AP/COS)  x 90  days,
DSO+DIO-DPO = CCC (Cash Conversion Cycle) or DWC (Daily Working Capital)

• Cash Conversion Cycle Definition And Overview
• Topics Covered In This Heading:Cash Conversion Cycle(CCC)/Daily Working Capital(DWC)Cash Operating Cycle
• Cash Conversion Cycle:Methodology and Computation
• What is Cash Operating Cycle And Ways To Improve Cash Flows
• Order-To-Cash Cycle:Definition,An Overview,Benefits,KPA and KPI
• How To Use Days Inventory Outstanding (DIO) for Better Stock Management
• An Example On How To Compute The Working Capital Requirements