What does the Cash Conversion Cycle measure?

The Cash Conversion Cycle (CCC) is a key metric in measuring the efficiency of a company's management of its working capital. It specifically gauges how quickly a company can convert its investments in inventory and accounts receivable into cash flows from sales.

When calculating the Cash Conversion Cycle, you are essentially assessing the total time it takes for a company to purchase inventory, sell it, and collect payment from customers. Therefore, the correct response reflects the speed at which purchases are transformed into cash, encompassing the entire process of production and sales as well as the collection of receivables.

This metric is vital for businesses as it helps in understanding how long capital is tied up in the production and sales cycle, ultimately impacting liquidity and operational efficiency. A shorter Cash Conversion Cycle indicates a more efficient process, allowing a company to reinvest cash more quickly into the business.