What working capital ratio measures the average number of days required to convert raw materials into cash received from customers?
ACash Conversion Cycle (CCC)
BDays Sales Outstanding (DSO)
COperating Cycle
DPayables Payment Period
Explanation
• Cash Conversion Cycle (CCC) measures time span from cash outlay for raw materials to cash recovery from credit sales.
• Formula: $text{CCC} = text{Days Inventory Outstanding (DIO)} + text{Days Sales Outstanding (DSO)} – text{Days Payables Outstanding (DPO)}$.
• A shorter Cash Conversion Cycle indicates higher working capital management efficiency.
Exam Relevance
- Topic: Financial Statement Analysis
- Subtopic: Working Capital Metrics
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