What is the formula for the cash conversion cycle (CCC)?

• A. CCC = DSO - DIO - DPO
• B. CCC = DSO + DPO - DIO
• C. CCC = DIO + DSO - DPO
• D. CCC = DSO + DIO - DPO

Answer: (D)

This measures how long cash is tied up in the operating cycle. The cash conversion cycle adds the time it takes to convert inventory into sales (Days Inventory Outstanding) and the time to collect receivables (Days Sales Outstanding), then subtracts the time you can delay paying suppliers (Days Payables Outstanding). So the formula is CCC = DSO + DIO - DPO. This makes sense because longer collection or inventory periods tie up cash longer, while a longer payables period frees up cash sooner by delaying outflows. For example, if DSO is 40 days, DIO is 30 days, and DPO is 20 days, CCC = 40 + 30 - 20 = 50 days. Also, DSO and DIO can be written in either order since addition is commutative, so DIO + DSO - DPO gives the same result.