GLOSSARY // Fundamentals
Cash Conversion Cycle
The cash conversion cycle measures how many days a dollar spends trapped in operations between paying suppliers and collecting from customers: CCC = DIO + DSO - DPO. Inventory days plus collection days, minus the days the company itself takes to pay its bills.
A shorter cycle means the business self-funds more of its own growth. The famous extreme is negative: a company that collects from customers before paying suppliers runs on vendor money. Amazon's retail operation and Dell's old build-to-order model are the textbook cases — customers pay at checkout while suppliers wait weeks.
Compare the cycle within an industry and across time. A CCC drifting from 40 to 70 days means more capital quietly sinking into working capital to support the same sales.
A company holds inventory for 68 days (DIO), collects receivables in 42 days (DSO), and pays suppliers in 55 days (DPO). CCC = 68 + 42 - 55 = 55 days. Cutting inventory days to 50 would drop the cycle to 50 + 42 - 55 = 37 days, freeing 18 days of sales worth of cash.
Related terms
Educational only — not financial advice. Definitions simplified for clarity; markets are messier than definitions.