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Formula
CCC = (Days Inventory Outstanding + Days Sales Outstanding - Days Payable Outstanding)
Know your metric
Importance of
Cash Conversion Cycle
Crucial for managing liquidity and operational efficiency.
Liquidity Insight
Provides insights into how quickly a company converts its investment in inventory into cash.
Operational Efficiency
Indicates how well a company is managing its inventory and receivables.
Financial Health
Helps in assessing the company's ability to pay off its liabilities.
Drawbacks of
Cash Conversion Cycle
Can be misleading if used alone without context.
Inventory Dependencies
Heavily dependent on the nature of the inventory and industry-specific cycles.
Volatile
Can fluctuate significantly with changes in payment terms and inventory management.
Complex Calculation
Involves multiple elements that can complicate the understanding and calculation.
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