Cash Conversion Cycle
The cash conversion cycle (CCC) is the theoretical amount of time between a company spending cash and receiving cash per each sale, output, unit of operation, etc. It is basically a measure of how long cash is tied up in working capital.
See a sample analysis using the cash conversion cycle.
CCC = 91.5 x [Avg. Inventory/COGS + Avg. Accounts Receivable/Sales - Avg. Accounts Payable/Purchases]
Note: Purchases is approximated by adding the change in inventory between the current and previous quarters to COGS. Additionally, in most cases CCC is calculated on an annual basis. Here it is presented as a quarterly calculation, hence the 91.5 multiplier instead of 365. For the purposes of averaging, we use the current and previous quarter.