Cash Cycle

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Definition: Cash Cycle

Cash cycle is the time elapsed between the amount spent in purchase of raw materials and revenue collected by the sale of finished goods. A smaller cash cycle is always the desired state as it strengthens the free cash position of the firm thus lessening the borrowing burden and promoting investor confidence. It is almost the same as Cash Conversion Cycle (CCC) which is give as:

CCC = 365 * [Avg. Inventory/COGS + Avg. Accounts Receivable/Sales - Avg. Accounts Payable/Purchases]

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