Cash Conversion Cycle
If your business is struggling with its cashflow management our Cash Conversion Cycle analysis may help you.
The Cash Conversion Cycle (CCC) is the number of days it takes to convert inventory purchases into cash flows from sales. The CCC is a metric that helps quantify the working capital efficiency of a company and is derived from three different components:
- Days Payable Outstanding (DPO) or the number of days from the time a company procures raw materials to payment to suppliers
- Days Inventory Outstanding (DIO) or the number of days the company holds its inventory before selling it
- Days Sales Outstanding (DSO) or the number of days taken to collect cash from customers
Companies can improve their working capital by effectively managing the individual components of their CCC via reducing inventory levels (decreasing DIO), extending payment terms with suppliers (increasing DPO) and speeding up collections from customers (shortening DSO). As a general rule, the lower the CCC, the better the working capital efficiency.
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Central Pacific Valuation will analyse your financial statements and produce a tailored Cash Conversion Cycle report for your business. We will benchmark your business performance to your industry peer group and provide actional recommendations to improve your Cash Conversion Cycle. Contact us now for more information.