Calculating the cash conversion cycle (CCC) is an important step in understanding the financial health of a business. The CCC is a measure of the time it takes for a company to convert its investments in inventory and other resources into cash flow. This metric is critical for businesses that rely on a steady stream of cash to fund their operations and growth.
The cash conversion cycle is a financial metric that measures the time it takes for a company to convert its investments in inventory and other resources into cash flow. The CCC is calculated by adding the number of days it takes for a company to sell its inventory (days inventory outstanding or DIO), the number of days it takes for a company to collect its accounts receivable (days sales outstanding or DSO), and the number of days it takes for a company to pay its accounts payable (days payable outstanding or DPO). The formula for CCC is:
CCC = DIO + DSO - DPO
The CCC is a measure of a company's efficiency in managing its working capital. A shorter CCC indicates that a company is able to convert its investments into cash more quickly, which can lead to improved cash flow and profitability.
Calculating the CCC is valuable for businesses that rely on a steady stream of cash to fund their operations and growth. By understanding the CCC, businesses can identify areas where they can improve their efficiency in managing their working capital. For example, if a company has a high DSO, it may need to improve its collection process to reduce the time it takes to collect payments from customers. Similarly, if a company has a high DPO, it may need to negotiate better payment terms with its suppliers to reduce the time it takes to pay its bills.
Calculating the CCC is also valuable for investors and lenders who are evaluating the financial health of a company. A shorter CCC indicates that a company is able to convert its investments into cash more quickly, which can be a positive sign for investors and lenders. On the other hand, a longer CCC may indicate that a company is struggling to manage its working capital, which can be a red flag for investors and lenders.
In conclusion, calculating the cash conversion cycle is an important step in understanding the financial health of a business. By understanding the CCC, businesses can identify areas where they can improve their efficiency in managing their working capital, which can lead to improved cash flow and profitability. Investors and lenders can also use the CCC to evaluate the financial health of a company and make informed investment and lending decisions.
Acumatica itself isn’t naturally geared towards letting you calculate complex metrics like Cash Conversion Cycle. As an alternative, teams typically use products like Arithmix to import data from Acumatica and build out dashboards.
Arithmix is the next generation spreadsheet - a collaborative, web-based platform for working with numbers that’s powerful yet easy to use. With Arithmix you can import data from systems like Acumatica, combine it with data from other systems, and create calculations like Cash Conversion Cycle.
In Arithmix, data is organized into Tables and referenced by name, not by cell location like a spreadsheet, simplifying calculation creation. Data and calculations can be shared with others and re-used like building blocks, vastly streamlining analysis, model building, and reporting in a highly scalable and easy to maintain platform. Data can be edited, categorized (by dimensions) and freely pivoted. Calculations are automatically copied across a dimension - eliminating copy and paste of formulas.
Arithmix is fully collaborative, giving your entire team access to your numbers and the ability to work together seamlessly.
Calculating metrics like Cash Conversion Cycle is simple in Arithmix. Once you've created your free account, you’ll be able to import your Acumatica data, and use it to create natural language formulas for metrics like Cash Conversion Cycle.
Arithmix is designed to give you the power to build any calculations you want on top of your Acumatica data, while also being easy to use and collaborate on. You can share your dashboards with users inside and outside of your organisation, making it easy to empower your whole team.