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Finance GlossaryCash Conversion Cycle
Cash Conversion Cycle
Definition of Cash Conversion Cycle
A Cash Conversion Cycle (CCC) tells you how many days it will take to convert a company’s inventory or resources into cash. The formula for Cash Conversion Cycle is:
Cash Conversion Cycle = (DIO + DSO) – DPO
Cash Conversion Cycle = (DIO + DSO) – DPO
- DIO: Days Inventory Outstanding is the average number of days it takes for a company to turn inventory into cash through sales
- DSO: Days Sales Outstanding is the average number of days it takes for a company to collect its receivables
- DPO: Days Payable Outstanding is the average number of days it takes fo a company to fulfil its obligations or payables
Related Terms
Free Cash Flow
Free float market capitalization is the market cap of a company based on the total freely available publicly traded outstanding shares. The formula to calculate free float market capitalization is:
Free float market capitalization = Share Price x (Number of Shares Available for Trading – Private and Locked-In Shares)
When calculating the free float market cap of a company, the number of shares held privately or the shares that are locked-in are not taken into account. Typically, these shares are held by promoters and the government.
Free float market capitalization = Share Price x (Number of Shares Available for Trading – Private and Locked-In Shares)
When calculating the free float market cap of a company, the number of shares held privately or the shares that are locked-in are not taken into account. Typically, these shares are held by promoters and the government.
Delivery Date
The delivery date of a cash or derivative contract refers to the final day and time on which the underlying asset should be delivered to the contract holder to fulfil the terms and obligations of the contract.
Unsystematic Risk
Unsystematic risk is the risk specific to a company or industry and not the overall market. It includes factors such as management decisions, labour strikes, or product failures. For example, a lawsuit affecting only one pharmaceutical company represents unsystematic risk and can be reduced through diversification.
Derivative
A derivative is a financial contract that is designed to derive its value from a single or group of underlying assets, generally between two parties or more. It contains a pre-agreed date of delivery and price.
The most common examples of a derivative contract are:
The most common examples of a derivative contract are:
- Futures
- Options
- Forwards
- Swaps
A derivative can be bought and sold on an exchange or over the counter. Since derivatives derive value from underlying assets, their price is known to fluctuate when the underlying asset gains or loses value.
Return on Assets (ROA)
Return on Assets (ROA) is a parameter used to measure the efficiency of a company in using its assets to generate profits. The ROA is calculated by dividing the net income by the total assets. A higher ROA implies the business is optimising the use of its assets, like plants, equipment, or cash, in order to earn money. The ROA metric is particularly useful when analysts compare companies in the same industry.
At The Opening
At the opening is an instruction to execute an order at the open price, which is the price of a security at the start of regular stock market hours.
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