The number of days it takes for a company to convert its investments in inventory and other resources into cash from sales.
The Cash Conversion Cycle measures how long each rupee is tied up in production and sales before it's converted back to cash. It combines three metrics: Days Inventory Outstanding (DIO — how long stock sits), Days Sales Outstanding (DSO — how long customers take to pay), minus Days Payable Outstanding (DPO — how long you take to pay suppliers). A shorter CCC means faster cash regeneration. Negative CCC (like Amazon) means you receive customer payment BEFORE paying suppliers — extremely capital-efficient. Industries with long manufacturing cycles (construction, shipbuilding) have high CCCs; services companies have low CCCs.
Manufacturing company: Inventory ₹20,00,000, COGS ₹1,00,00,000, Receivables ₹25,00,000, Revenue ₹1,50,00,000, Payables ₹15,00,000. DIO = (20L/1Cr) × 365 = 73 days. DSO = (25L/1.5Cr) × 365 = 61 days. DPO = (15L/1Cr) × 365 = 55 days. CCC = 73 + 61 – 55 = 79 days. Money is locked for 79 days between paying for raw materials and collecting from customers.
Ensures accurate financial reporting and record-keeping
Helps maintain regulatory and tax compliance
Enables better-informed business decisions
Improves operational efficiency and cash flow management
It varies dramatically by industry: Supermarkets/retail: Negative to 10 days (collect before paying suppliers). IT services: 30–50 days. Manufacturing: 60–120 days. Construction: 90–180+ days. The goal is to be shorter than your industry average. Negative CCC is ideal — it means your business generates cash from operations without needing external working capital.
Three levers: 1) Reduce DIO: Better demand forecasting, just-in-time inventory, reduce slow-moving stock. 2) Reduce DSO: Faster invoicing, early payment discounts, stricter credit terms, automated follow-ups. 3) Increase DPO: Negotiate longer payment terms with suppliers (60-90 days), use full credit period available. Improving any one by 10 days on ₹10 crore revenue frees up ~₹2.7 lakh in working capital.
The difference between a company's current assets and current liabilities, representing the short-term liquidity available for day-to-day operations.
The average number of days it takes a company to collect payment after a sale has been made.
A ratio that measures how many times a company's inventory is sold and replaced over a specific period, indicating sales efficiency and inventory management.
The net amount of cash and cash equivalents moving into and out of a business during a specific period.
A ratio measuring how quickly a company pays its suppliers, calculated by dividing total purchases by average accounts payable.
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