This lesson provides an in-depth analysis of the cash conversion cycle (CCC) as a comprehensive measure of working capital efficiency. It covers the calculation of each component—Days Inventory Outstanding, Days Sales Outstanding, and Days Payable Outstanding—and strategies for optimisation.

• The Cash Conversion Cycle as a Performance Metric: The cash conversion cycle measures the time a company’s cash is tied up in operations. A shorter CCC indicates more efficient working capital management and suggests the company can generate cash more quickly. The course aims to “demonstrate the ability to evaluate and improve a firm’s cash flow” through understanding the CCC .

• Calculating the Cash Conversion Cycle: The CCC is calculated as:

  • CCC = Days Inventory Outstanding (DIO) + Days Sales Outstanding (DSO) – Days Payable Outstanding (DPO)

  • DIO (Days Inventory Outstanding): Average number of days inventory is held.

  • DSO (Days Sales Outstanding): Average number of days to collect payment from customers.

  • DPO (Days Payable Outstanding): Average number of days to pay suppliers.

• Strategies for Reducing the Cash Cycle: Firms can shorten their cash conversion cycle by:

  • Reducing DIO: Improving inventory management (e.g., through just-in-time systems).

  • Reducing DSO: Accelerating collections from customers (e.g., through shorter credit terms or discounts for early payment).

  • Increasing DPO: Extending payment terms with suppliers (subject to supplier relationships and potential costs).

• Optimising Working Capital: The goal is to understand the trade-off between liquidity and profitability. The course is designed to help participants “improve cash flow, reduce costs, and increase profitability” through effective working capital management .