Cash conversion cycle is the time in which a company converts its investment into inventory and other resources into cash.
Cash conversion cycle measure that, how long a company tied up its cash in the inventory before the selling of inventory and collection of cash from the customer.
There are 3 stages in the cash conversion cycle.
The first stage shows the current inventory level of the company and how long the inventory takes time to sell. The first stage of the cash cycle calculated by days inventory outstanding calculation.
The second stage of the cash conversion cycle represents the current sale and the time to collect the cash from these current sales. This stage calculated by the days’ sales outstanding calculation.
The third stage of the cash cycle represents the current outstanding payable. It is calculated by the days’ payable outstanding calculation.
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