The Cash Conversion Cycle is the time period between the outlay of cash to make a product and the collection of cash from the sale of that product. The objective is for the cash conversion cycle to be shorter than your trade vendor credit terms.
My name is Michael Barbarita from Next Step CFO with the Know Your Numbers Minute.
Put another way, if you convert the production of your product into cash before you pay for the raw material you are going to be in good shape.
Calculating the cash conversion cycle is a quick way to discover the cause of a cash flow problem.
Remember, the most successful business owners know their numbers.