What does the cash conversion cycle measure?

What does the cash conversion cycle measure?

• A. A measure of overall profitability
• B. Time between cash outlay and cash receipt
• C. Length of patient stay
• D. Profit margin per unit

Answer: (B)

The cash conversion cycle measures how long cash is tied up in the operating cycle—from the moment cash is spent on inventory to the moment cash is collected from customers. It is calculated as days inventory outstanding plus days sales outstanding minus days payable outstanding, reflecting the timing of cash inflows and outflows and overall working capital efficiency. A shorter cycle means cash is recovered faster, while a longer cycle indicates cash stays tied up longer. It does not measure profitability, patient stay length, or per-unit profit margin.

The cash conversion cycle measures how long cash is tied up in the operating cycle—from the moment cash is spent on inventory to the moment cash is collected from customers. It is calculated as days inventory outstanding plus days sales outstanding minus days payable outstanding, reflecting the timing of cash inflows and outflows and overall working capital efficiency. A shorter cycle means cash is recovered faster, while a longer cycle indicates cash stays tied up longer. It does not measure profitability, patient stay length, or per-unit profit margin.