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Concept
Cash conversion cycle
Résumé
In management accounting, the Cash conversion cycle (CCC) measures how long a firm will be deprived of cash if it increases its investment in inventory in order to expand customer sales. It is thus a measure of the liquidity risk entailed by growth. However, shortening the CCC creates its own risks: while a firm could even achieve a negative CCC by collecting from customers before paying suppliers, a policy of strict collections and lax payments is not always sustainable.
CCC is days between disbursing cash and collecting cash in connection with undertaking a discrete unit of operations.
{| style="text-align:center;"
|-
|CCC
| =
| Inventory conversion period
| +
| Receivables conversion period
| −
| Payables conversion period
|-
|
| =
|
| +
|
| −
|
|}
Cashflows insufficient. The term "Cash Conversion Cycle" refers to the timespan between a firm's disbursing and collecting cash. However, the CCC cannot be directly observed in cashflows, because these are also influenced by investment and financing activities; it must be derived from Statement of Financial Position data associated with the firm's operations.
Equation describes retailer. Although the term "cash conversion cycle" technically applies to a firm in any industry, the equation is generically formulated to apply specifically to a retailer. Since a retailer's operations consist of buying and selling inventory, the equation models the time between
(1) disbursing cash to satisfy the accounts payable created by purchase of inventory, and
(2) collecting cash to satisfy the accounts receivable generated by that sale.
Equation describes a firm that buys and sells on account. Also, the equation is written to accommodate a firm that buys and sells on account. For a cash-only firm, the equation would only need data from sales operations (e.g. changes in inventory), because disbursing cash would be directly measurable as purchase of inventory, and collecting cash would be directly measurable as sale of inventory.
Source officielle
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