Graph #7 of 8 From Company Dashboard - How Long Does it Take You To Convert Cash?

The Cash Conversion Cycle (CCC in the graph above) shows the length of time in days that it takes your company to turn its investments in inventory and other resources into cash flow from sales.

Before you read more about CCC, the CCC only applies to company's with inventory. For example, a consulting company does not have inventory and this metric would not be applicable. If your company's balance sheet does not have inventory, this metric is not for you.

Your entire company should know what your target CCC is. Just like any other financial ratio or metric this target should be communicated throughout the company - don't limit it to just executives.

The lower your company's CCC the faster your company is generating cash. You may want to benchmark your company's CCC to company's outside your industry. This will not work. Only compare to your competitors or companies in a similar industry to yours.

You can also benchmark your past numbers against themselves to see how your company is doing converting investments in inventory into cash. If you notice your CCC is increasing, it may be a signal that you need to do something different. Areas you could look at are Inventory, COGS, A/R, and A/P.

The CCC is one of the more difficult metrics to calculate. Here is the formula:

Days Inventory Outstanding plus Days Sales Outstanding less Days Payable Outstanding.

Days Inventory Outstanding = 1/2 (Beginning Inventory + Ending Inventory) Divided by Cost of Goods Sold. Take that number and multiply by 365 Days.

Days Sales Outstanding = 1/2 (Beginning A/R + Ending A/R) Divided by the Revenue Per Day.

Days Payable Outstanding = 1/2 (Beginning A/P + Ending A/P) Divided by COGS Per Day