Cash cycle

The cash cycle, also called the cash conversion cycle, is a measure of the length of time it takes to get from paying cash for stock to getting cash after selling it. It is equal to:

stock days + debtor days - creditor days

See stock days, debtor days and creditor days.

The length of the cash cycle dictates the amount of money that needs to be tied up in working capital proportionate to sales.

A shorter cash conversion cycle is better, other things being equal. It is possible for the cash conversion cycle to be negative, this is most likely for certain retailers who buy on credit, sell for cash and have a high stock turnover.

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