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Finance
Cash Conversion Cycle
The time it takes for a company to convert its investments in inventory and resources into cash from sales.
Cash conversion cycle = days inventory outstanding + days sales outstanding – days payables outstanding. A shorter cycle means the company needs less working capital and generates cash faster.
It's the full loop from spending cash on stock to getting cash back from customers.
Real world: Amazon has a very short (sometimes negative) cash conversion cycle because it gets paid by customers immediately but pays suppliers much later. This gives it huge amounts of free cash to grow with.
💡 A short cash conversion cycle is like having a money printing machine that runs on your operations.