Term · Cash Flow & Working Capital
Cash conversion cycle
In briefThe cash conversion cycle measures the time between the cash outflow for inventory and suppliers and the cash inflow from customers. For growing small caps it shows how much liquidity growth ties up.
Definition
The time span between the cash outflow for inventory/suppliers and the cash inflow from customer receivables.
How it is calculated
Formula. CCC = DIO + DSO − DPO.
Why it matters for small caps
For growing small caps, the cash conversion cycle determines how much liquidity growth ties up.
Common misreadings
- It is rarely modeled; revenue growth with a long CCC can trigger capital increases.
In the process
Frequently asked
What is the cash conversion cycle?
It indicates how long capital is tied up in current assets before it flows back as cash. What is measured is the span from the supplier payment to the customer receipt.
How do you calculate the cash conversion cycle?
You add up inventory and receivables days and subtract payables days (DIO + DSO − DPO). The result shows the duration of capital tie-up in days.
Why is a long cash conversion cycle risky during growth?
If revenue grows while capital is tied up for long, the liquidity requirement rises with it. This can trigger additional financing or a capital increase.
Related terms
Sources
Primary
IFRS Foundation – IAS 7 Statement of Cash Flows
https://www.ifrs.org/issued-standards/list-of-standards/ias-7-statement-of-cash-flows.html/
https://www.ifrs.org/issued-standards/list-of-standards/ias-7-statement-of-cash-flows.html/
Methodology
ESMA – Guidelines on Alternative Performance Measures
https://www.esma.europa.eu/document/esma-guidelines-alternative-performance-measures
https://www.esma.europa.eu/document/esma-guidelines-alternative-performance-measures
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.