Cash conversion cycle
Financial ratio analysis - management efficiency ratios.
The cash conversion cycle indicates how long it takes a company to convert cash outflows into cash inflows.
For example in a manufacturing firm, the average length of time between payment for raw materials and other inputs, and the receipt of cash from the firm's customers.
The shorter the time, the less funding a company has to find.
The cash conversion cycle is calculated as:
Days inventory outstanding
ADD Days receivables outstanding
LESS Days payables outstanding