Cash conversion cycle is calculated as CCC = DSO + DIO - DPO. Which formula correctly defines the cash conversion cycle?

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

Answer: (A)

The cash conversion cycle measures how long cash is tied up in the operating cycle from paying suppliers to collecting cash from customers. It adds the time to collect receivables (DSO) and the time inventory sits before sale (DIO), then subtracts the time you can delay paying suppliers (DPO). Longer collection days or more time in inventory push cash further out, while longer payable terms pull cash outflow later, shortening the cycle. So the correct definition is CCC = DSO + DIO - DPO. For example, if DSO is 40 days, DIO is 60 days, and DPO is 30 days, CCC = 70 days. Subtracting DPO properly accounts for how supplier credit effectively funds part of the cycle; reversing or misplacing these terms would misrepresent how cash flows through operations.