  # The cash conversion cycle (CCC) can help you understand the amount of time it takes to collect cash from sales of your inventory. It is an important tool for small business owners - that is why we've compiled this short guide to making a cash conversion cycle calculation. ###### Helen Cockle The cash conversion cycle (CCC) can help you understand the amount of time it takes to collect cash from sales of your inventory. It is an important tool for small business owners - that is why we've compiled this short guide to making a cash conversion cycle calculation.

## How to calculate CCC

The cash conversion cycle formula is as follows: Cash Conversion Cycle = DIO + DSO – DPO

DIO = Days Inventory Outstanding/ DSO = Days Sales Outstanding/ DPO = Days Payable Outstanding

DIO and DSO are cash incoming and DSO is cash outcoming, hence the latter is a negative figure.

## How to calculate the individual elements

1. DIO describes the average number of days it takes your business to convert inventory to sales. The formula is as follows: DIO = Average Inventory / Cost of Goods Sold x 365
2. DSO describes the number of days that a business takes to collect its receivables. The formula is as follows: DSO = Average Accounts Receivable / Total Credit Sales x 365
3. DPO defines how many days it takes your business to pay back invoices from suppliers. The formula is as follows: DPO = Average Accounts Payable / Cost of Goods Sold x 365

## Example

Company X sells cat food. They have a DIO of 18 days, a DSO of 35 days, and a DPO of 55 days. This is how you would calculate the their CCC: CCC = 18 + 45 – 55 = 8. Company X's CCC is 7, which means they convert inventory to cash efficiently.

## Understanding the cash conversion cycle calculation 