The cash conversion cycle is shorter than the operating cycle by the time it takes for the firm to pay its own bills.

Question

Quizplus · Accepted Answer

The cash conversion cycle (CCC) is the amount of time it takes for a company to convert its investments in inventory and other resources into cash flow from sales. The operating cycle, on the other hand, includes the time it takes to acquire raw materials, produce goods, and sell them. The CCC is calculated by subtracting the number of days it takes to pay suppliers from the sum of the number of days it takes to sell inventory and the number of days it takes to collect receivables. Therefore, if a company takes longer to pay its own bills, the CCC will be shorter than the operating cycle.

The Cash Conversion Cycle Is Shorter Than the Operating Cycle