Describe how you calculate CCC, Cash Conversion Cycle.
What will be an ideal response?
To calculate CCC, you need to include several items from the financial statements:
Income statement: revenue and COGS
Balance sheet
Beginning and ending inventory
Beginning and ending accounts receivable
Beginning and ending accounts payable
Note that for balance sheet items, because they capture a snapshot in time, you want to average over the period of time that you are investigating. So if you are looking at one year, then you need to look at the ending period for the current year and the same ending period for the previous year.
CCC = DSO = DOI – DPO
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