The cash conversion cycle (CCC) measures how long your money is tied up in the business process — from paying for raw materials to collecting cash from customers. It is the total time between spending cash and receiving cash.
The formula: CCC = Days Inventory Outstanding + Days Sales Outstanding - Days Payable Outstanding. If you hold inventory for 45 days, customers take 30 days to pay, and you pay suppliers in 40 days: CCC = 45 + 30 - 40 = 35 days.
A shorter CCC is better — it means cash flows back faster. Amazon famously has a negative CCC (around -30 days) — they collect from customers before paying suppliers, effectively using supplier money as free financing. Banks analyze a company's CCC when evaluating working capital loan applications.