Cash conversion cycle

Days of inventory plus days of receivables less days of payables: how long cash is tied up between paying suppliers and being paid by customers.

Where you will meet it

Cash conversion cycle appears in 3 learning outcomes on the CFA syllabus. A few of them:

• Work out liquidity and activity ratios and explain what they mean
  CFA Level I · Financial Statement Analysis

  “Activity ratios measure how quickly stocks turn — days of inventory, days of receivables and days of payables — and combining them gives the cash conversion cycle, the number of days between paying for inputs and collecting from customers.”

• Explain how firms manage working capital
  CFA Level I · Corporate Issuers

  “The cash conversion cycle — days of inventory plus days of receivables minus days of payables — measures how long cash is tied up in operations; shortening it frees cash.”

• Work out the cash conversion cycle and explain what it shows
  CFA Level I · Corporate Issuers

  “The cash conversion cycle measures how long a company's own cash is tied up in operations: CCC = days of inventory on hand + days of sales outstanding - days of payables outstanding.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with C · Glossary