15.2 Cash Conversion Cycle

  1. LG2

Central to working capital management is an understanding of the firm’s cash conversion cycle. The cash conversion cycle (CCC) is the length of time between when a firm pays cash for its raw materials and when it receives cash from collecting its receivables. Companies with a long cash conversion cycle must wait a long time after they pay their suppliers before they receive payment from customers, and the gap between when a firm pays and when it receives payment creates a need for financing to sustain the firm’s operations. This cycle frames discussion of the management of the firm’s current assets in this chapter and that of the management of current liabilities in Chapter 16. We begin by demonstrating the ...

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