Tuesday, February 28, 2012

What is the Cash Conversion Cycle?

The cash conversion cycle (CCC) is the length of time between a company's purchase of inventory from a supplier and the receipt of cash from accounts receivable in connection with the company undertaking a discrete unit of its operations.

The cash conversion cycle (CCC) cannot be directly observed in the firm’s cash flow statements; rather the raw cash flow will be influenced by variables not entertained by the cash conversion cycle, such as various investment and financing activities concurrently undertaken by the company. Generally, this is the time required for a business to turn purchases into cash receipts from customers through its accounts receivables.

Most importantly, the CCC is the total days a company's cash remains locked up within the operations of it business units. In practice, this equation can show how effective the management of a corporation is.

No comments:

Popular Accounting Problems

The information on this site is for informational purposes only and should not be used as a substitute for the professional advice of an accountant, tax advisor, attorney, or other professional.