Cash conversion cycle (CCC)

The cash conversion cycle measures how many days pass between paying cash out for inventory or services and collecting cash in from customers. It is calculated as Days Inventory Outstanding + Days Sales Outstanding - Days Payable Outstanding: the time to sell inventory, plus the time to collect from customers, minus the time the company itself takes to pay its own suppliers.

A shorter CCC means cash is tied up for less time, which is generally better; a negative CCC, common in some subscription and retail businesses, means the company collects from customers before it has to pay suppliers, effectively funding operations with other people's money. CCC is a more dynamic, time-based view than a single working capital balance, which only shows a snapshot.

CCC matters most for inventory-heavy and working-capital-intensive businesses, where a long cycle can force a company to borrow or raise cash to bridge the gap even while profitable, similar in effect to a high burn rate. A common pitfall is comparing CCC across industries: a grocery retailer and a capital-equipment manufacturer have structurally different cycles, so CCC is most meaningful compared against a company's own history or close peers.