Cash Conversion Cycle
The number of days between paying for inputs and collecting cash from customers.
Formula
Cash Conversion Cycle = Inventory Days + Debtor Days - Creditor Days
Unit
days
In depth
The cash conversion cycle is the clearest single measure of how much working capital a business must fund, and therefore of how expensive its growth is. Every day of the cycle is a day the company finances its own operations, so a shortening cycle releases cash while a lengthening one consumes it even at flat revenue. A negative cycle — collecting before paying suppliers — is a structural advantage found in retail, quick-service restaurants and subscription businesses, effectively giving the company free financing from its customers. Improvements achieved by stretching creditors rather than by collecting faster are borrowed, not earned, and eventually cost supplier goodwill.
Worked example
Inventory 97 days plus debtor 80 days less creditor 79 days gives a cycle of 98 days. On revenue of ₹1,000 crore, that is roughly 98 / 365 x 1,000 = ₹268 crore of sales value permanently tied up in operations.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Cash Conversion Cycle” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.