Cash Conversion Cycle = DIO + DSO – DPO · DIO stands for Days Inventory Outstanding · DSO stands for Days Sales Outstanding · DPO stands for Days Payable ...CashConversionCycleTheamountoftimeittakesacompanytoconvertitsinvestmentsininventorytocashHome›Resources›Knowledge›Accounting›CashConversionCycleWhatistheCashConversionCycle?TheCashConversionCycle(CCC)isametricthatshowstheamountoftimeittakesacompanytoconvertitsinvestmentsininventoryInventoryInventoryisacurrentassetaccountfoundonthebalancesheet, consistingofallrawmaterials,work-in-progress,andfinishedgoodsthatatocash.Theconversioncycleformulameasurestheamountoftime,indays,ittakesforacompanytoturnitsresourceinputsintocash.LearnmoreinCFI’sFinancialAnalysisFundamentalsCourse.  CashConversionCycleFormulaThecashconversioncycleformulaisasfollows: CashConversionCycle=DIO+DSO–DPO Where:DIOstandsforDaysInventoryOutstandingDSOstandsforDaysSalesOutstandingDPOstandsforDaysPayableOutstanding WhatisDaysInventoryOutstanding(DIO)?DaysInventoryOutstanding(DIO)DaysInventoryOutstandingDaysinventoryoutstanding(DIO)istheaveragenumberofdaysthatacompanyholdsitsinventorybeforesellingit.Thedaysinventoryisthenumberofdays,onaverage,ittakesacompanytoturnitsinventoryintosales.Essentially,DIOistheaveragenumberofdaysthatacompanyholdsitsinventorybeforesellingit.Theformulafordaysinventoryoutstandingisasfollows:  Forexample,CompanyAreporteda$1,000beginninginventoryand$3,000endinginventoryforthefiscalyearended2018with$40,000costofgoodssold.TheDIOforCompanyAwouldbe:  Therefore,ittakesthiscompanyapproximately18daystoturnitsinventoryintosales. DaysSalesOutstanding(DSO)DaysSalesOutstanding(DSO)DaysSalesOutstanding(DSO)DaysSalesOutstanding(DSO)representstheaveragenumberofdaysittakescreditsalestobeconvertedintocash,orhowlongittakesaisthenumberofdays,onaverage,ittakesacompanytocollectitsreceivables.Therefore,DSOmeasurestheaveragenumberofdaysforacompanytocollectpaymentafterasale.Theformulafordayssalesoutstandingisasfollows: Forexample,CompanyAreported$4,00