Explain how DIO, DSO, and DPO combine into the cash conversion cycle.
The cash conversion cycle shows where profit gets stuck. The mechanism CCC = Days Inventory Outstanding + Days Sales Outstanding - Days Payables Outstanding. DIO asks how long inventory sits before sale. DSO asks how long customers take to pay. DPO asks how long the company takes to pay suppliers. Why it works Working capital is a timing problem. A company can be profitable on the income statement and still need financing because cash leaves before cash returns. The longer the cycle, the more funding is required to support growth. Common trap Do not assume a shorter CCC is always…
Sign up free — one personalized lesson every day, matched to your role and goals.
Already have an account? Sign in