CTL: Cash Conversion Cycle
eliza hl
Published Date
The Cash Conversion Cycle (CCC) measures how long it takes for a company to convert investments in inventory and other resources into cash flows from sales. If you understand your company’s CCC, you can identify where cash gets stuck and how to improve cash flow without taking on more debt.
Step 1: Gather the Data
To calculate the CCC, you’ll need to calculate three key metrics:
- Days Sales Outstanding (DSO) – How long it takes to collect receivables.
- Days Inventory Outstanding (DIO) – How long inventory sits before being sold.
- Days Payables Outstanding (DPO) – How long the company takes to pay suppliers.
You want data for your company and 1 or 2 competitors.
- Income Statement: Sales, Cost of Goods Sold
- Balance Sheet: Receivables, Inventories, Payables
Check your company’s annual report, financial statements, or internal accounting data to find the data. If you're analyzing competitors, you can find similar data in publicly available annual reports, SEC filings, or industry reports.
Or use the Visual Finance App. If you don’t have an account, it’s easy to set one up.
Once you have collected the data, move on to Step 2 to set up your comparison table.
Step 2: Set Up Your Comparison Table
Before running any calculations, set up your comparison table so the results are stored correctly.
1. Enter Company Name for YourCompany (i.e. in the drop down)
- Click "Set Name" to confirm.
- Enter data in Step 3 and run the calculations (DSO DIO, DPO). The results will be stored in Column 1.
2. Enter Company Name for Comparison1 (select from dropdown).
- Click "Set Name" to confirm.
- Enter data in Step 3 and run the calculations (DSO DIO, DPO). The results will be stored in Column 2.
3. Repeat for Comparison2 (The results will be stored in Column 3).
⚠️ Reminder: If you don’t set a new column before running calculations, the data will overwrite the last entry.
Step 3: Calculate the Ratios and CCC
Use the formulas to calculate the 3 components of Cash Conversion cycle.
Step 4: Interpret the Results
Example: If a business has DSO = 45 days, DIO = 50 days, DPO = 30 days. The CCC is 45 + 50 -30 = 65 Days - this means there are 65 days between the time you spend cash on inventory and the time you receive cash from customers
- A short CCC (fewer days) means the business converts cash faster—ideal for liquidity.
- A long CCC (more days) suggests cash is tied up in operations, which can lead to financing constraints.
- Compare your CCC to industry benchmarks—is it higher or lower than competitors?
Step 5: Improve Your CCC
- Shorten DSO – Improve collections from Customers, e.g. offer early payment discounts.
- Reduce DIO – Optimize inventory management, reduce slow-moving stock.
- Extend DPO – Negotiate better supplier terms without penalties.
Challenge: Improve CCC by 5 Days
- Look at your own company’s CCC. Where is cash getting stuck?
- If you could improve DSO, DIO, or DPO by just 5 days, how much cash would be freed up?
- Consider real actions you or your team can take to improve cash flow efficiency.
Final Thought:
A strong Cash Conversion Cycle means more available cash, less reliance on financing, and a healthier business overall. Where can you make an impact?
