This video shows how to calculate the length of a company’s cash conversion cycle.

The cash conversion cycle is the number of days between when a company pays its suppliers cash for inventory and when it collects cash from its customers. Thus, it is calculated as follows:

Cash Conversion Cycle = Days to Sell Inventory + Days Sales Outstanding – Days Payable Outstanding

Days to Sell Inventory is the number of days it takes for the company to sell its inventory. Days Sales Outstanding (also known as the Average Collection Period) is the number of days it takes the company to collect cash from its customers. Days Payable Outstanding is the number of days it takes the company to pay its suppliers cash for inventory.