Cash conversion cycle
Also called: cash cycle, operating cycle, net operating cycle
Inventory days plus receivable days minus payable days. Roughly how long cash is tied up in each round of buying, making and selling.
The cycle turns working capital balances into time. A long cycle means the business must finance stock and customer credit for a long time; a short or negative one means suppliers or customers fund much of its operations.
Example
Inventory days of 60, receivable days of 60 and payable days of 40 give a cash conversion cycle of 80 days.
Learn more in these lessons
- Working capital, inventory and receivablesWhat is working capital and why does it matter?
- Working capital efficiencyHow can working capital trends warn you about a company's health?
Related terms
Spotted a mistake or something unclear? Report it by email. Here is how corrections work.