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Cash Conversion Cycle!

CCC stands for more than just the debt rating of a company with poor credit prospects. CCC also stands for Cash Conversion Cycle and it just might be one of the most often overlooked, yet most important financial metric for a small business owner to keep track of.

The Cash Conversion Cycle is the time between when the cash goes out of a business (generally to pay for supplies, salaries and other expenses) and when the cash comes in (from collecting on sales). There are three main components of the cash conversion cycle, the time that the company takes to pay its suppliers (its Days Payables Period), the time period that raw materials and finished goods sit in inventory before they are sold (the Days in Inventory), and the time it takes for the business to collect the receivables from its sales (Days of Receivables).

A company can have very good sales, with a high profit margin, but if it ignores its Cash Conversion Cycle, the company can still go bankrupt quickly. The ability of a business to turn its investment is supplies, inventory and other expenses in cash in the bank is ultimately the key to success.

A prudent business manager always knows their CCC. Do you?


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