asset conversion-cycle-vs-cash-conversion-cycle
June 9, 2023
min read
Written by: 
Nikolaus Hilgenfeldt

Asset Conversion Cycle vs Cash Conversion Cycle

Do you have an outstanding product or service, a committed team, and loyal customers?

Still, does your current situation involve having your working capital locked in inventory, unpaid receivables, and payables that consume your resources?

One key factor in achieving business success is making the most of the resources available and turning them into valuable results. 

Two key concepts that play a pivotal role in this endeavor are the asset conversion cycle (ACC) and the cash conversion cycle (CCC).

Keep reading to learn about the ACC and CCC cycles and how they can directly affect your business's financial health, operational efficiency, and overall success.

What is the Asset Conversion Cycle vs Cash Conversion Cycle?

The asset conversion cycle (ACC) and the cash conversion cycle (CCC) are financial metrics used to assess the efficiency of a company's working capital management.

While they are related, they focus on different aspects of the company's operations.

1. Asset Conversion Cycle (ACC)

The asset conversion cycle measures the time it takes for a company to convert its investments in inventory and other assets into cash through sales.  

It signifies when a company invests its initial cash in purchasing raw materials to the point of receiving payment from customers for the final products or services provided.

Every business, regardless of its size and nature, possesses an asset conversion cycle comprising two main elements: 

  • Operating cycle
  • Capital investment cycle. 

The operating cycle encompasses the regular activities of a company, such as producing and selling goods or services, as well as collecting cash from those sales. 

On the other hand, the capital investment cycle involves acquiring and utilizing fixed assets necessary for day-to-day operations.

Asset Conversion Cycle Components

The key components within the asset conversion cycle include:

1. Procurement of Materials

If you have short payment terms with suppliers, you must have the necessary cash to make immediate purchases.

For instance, you need to pay almost instantly if weekly payments are required.

However, if the supplier allows a monthly payment period, you have a significantly longer timeframe to delay cash disbursement.

2. Production Duration

During the manufacturing process, it is common for cash to be held for a significant amount of time. 

To minimize the amount of time that money is invested in production, you can implement a just-in-time production strategy.

3. Billing speed

You will receive payments once you issue invoices to your customers.

Therefore, it is crucial to promptly send invoices once you deliver the product or provide the service.

If there are delays in delivering the goods, you can request partial payments from customers in the interim, facilitating a faster cash flow.

4. Collection period

The terms you establish when making a sale determine the time required to collect the customer's payment. 

If the collection period is lengthy, you may face insufficient cash flow  to sustain your business operations.

How To Calculate ACC

To calculate the asset conversion cycle, you need to determine the durations of three key components: 

1. Days Inventory Outstanding (DIO) measures the average number of days it takes for a company to sell its inventory.


To calculate the average inventory, add the beginning and ending inventory for a specific period and divide by 2.

2. Days Sales Outstanding (DSO) represents the average number of days it takes for a company to collect its accounts receivable.


To calculate the total credit sales, you need to know the sales made on credit during a specific period.

3. Days Payable Outstanding (DPO) measures the average number of days it takes for a company to pay its suppliers.


Like the previous components, you'll need the accounts payable and cost of goods sold values for the same period.

After calculating each of these three components, you can determine the asset conversion cycle using the following formula:


The resulting number will indicate the average number of days it takes a business takes to convert its assets into cash flow.

💡 A shorter ACC indicates that you can convert assets into cash more quickly, which generally signifies better working capital management and liquidity.

Conversely, a longer cycle can suggest possible concerns regarding inventory control, sales performance, or cash flow management.

2. Cash Conversion Cycle (CCC)

The cash conversion cycle is a subset of the asset conversion cycle and focuses specifically on cash flow.

It measures the time it takes for a company to convert its investments in inventory and other resources into cash and then back into cash again through collecting receivables.

The CCC represents the days a company's cash is tied up in the operating cycle.

A shorter CCC indicates the conversion of its investments into cash quickly and efficiently, allowing for better liquidity.


❗In summary, the asset conversion cycle focuses on the overall efficiency of managing inventory, receivables, and payables.

Conversely, the cash conversion cycle explicitly examines the time it takes to convert investments into cash and back into cash through collecting receivables.

Comparing the Asset & Cash Conversion Cycles 

To make better financial decisions, you should analyze and compare the asset conversion cycle (ACC) and cash conversion cycle (CCC), along with their components:

1. Asset Turnover Ratio

The asset turnover ratio measures how efficiently a company converts its investments in assets into sales.

A higher asset turnover ratio indicates that the company is generating more sales per unit of assets.

Since different industries have unique characteristics, comparing this ratio is most significant when conducted within companies operating in the same sector.

2. Cash Conversion Ratio

The cash conversion rate evaluates how efficiently a company converts its investments in assets into cash. You can calculate it by dividing the net cash from operations by the average total assets.

The cash conversion rate is determined for a specific period, like a quarter or a year.

A higher rate can indicate effective working capital management, which is crucial for maintaining liquidity and meeting financial obligations.

3. Receivables Collection Period

The receivables collection period measures the average number of days it takes for a company to collect payments from its customers.


A shorter collection period indicates better cash flow management and reduces the risk of bad debts. 

Monitoring the receivables collection period helps identify any issues with credit policies, customer payment behaviors, or potential liquidity constraints.

4. Inventory Turnover Ratio

The inventory turnover ratio is a financial metric measuring the efficiency of a company's inventory management and sales. It indicates how quickly inventory is sold and replaced over a specific period.

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

A higher inventory turnover ratio suggests that a company sells its inventory more quickly, indicating effective inventory management, strong sales, and efficient operations.

On the other hand, a lower ratio may indicate slower inventory turnover, which could be a sign of excess inventory, poor sales performance, or inadequate inventory management.

Key Metrics Takeaways

By comparing these metrics between different periods or benchmarking against industry peers, you can identify areas for improvement.


How To Optimize Asset Conversion Cycle (ACC)

1. Inventory Management

  • Implement just-in-time (JIT) inventory practices to reduce excess inventory levels.
  • Enhance demand forecasting accuracy to align inventory levels with customer demand.
  • Identify slow-moving or obsolete inventory and take appropriate action to liquidate or minimize its impact.
  • Build strong relationships with suppliers to ensure timely and efficient delivery of inventory.

2. Receivables Management

  • Establish clear credit policies and procedures to assess the creditworthiness of customers.
  • Offer incentives for early payment or penalties for late payment to encourage timely collections.
  • Utilize technology solutions to streamline the invoicing and collection, such as electronic invoicing or online payment options.

3. Payables Management

  • Negotiate favorable payment terms with suppliers to optimize cash flow.
  • Take advantage of early payment discounts offered by suppliers.
  • Regularly review and optimize the payment schedule to ensure timely payments without unnecessary early fees.

How To Optimize Cash Conversion Cycle (CCC)

1. Streamline Cash Flow Management

  • Implement cash flow forecasting to anticipate cash inflows and outflows and plan accordingly.
  • Maintain a cash reserve or line of credit to address short-term cash needs and avoid liquidity issues.
  • Optimize cash flow by closely managing working capital components, such as inventory, receivables, and payables.

Pro Tip From Myos

For ecommerce businesses, inventory is crucial to ensuring customer satisfaction and smooth operation.

But you may face liquidity shortfalls when you experience high demand for top-selling products and need to buy more inventory to meet customer needs.

As a result, it can prevent you from launching new products or investing in marketing efforts.

However, even if a company is performing well, there may come a time when you need additional funds.

In such a situation, what should be the top priority? Here are some options to consider:

1. Focus on replenishing and expanding the inventory to meet customer demand and avoid shortages.


2. Allocate funds towards marketing initiatives to promote the business, attract more customers, and increase sales.


3. Invest in expanding the business by opening a new location to reach a broader customer base and enhance market presence.

4. Hire additional staff members to support business operations, improve productivity, and meet growing demands.

5. Invest in improving the physical infrastructure, such as renovating the store or workspace, to create a better customer experience and enhance the overall business environment.


Secure a funding range of €10,000 to €2,500,000, providing you with the necessary resources to expand your operations and accelerate growth.

Unlike traditional financing options, Myos offers unparalleled flexibility, as there are no fixed costs or personal guarantees required.

Additionally, the repayment structure is designed to accommodate your business needs, allowing you to repay the borrowed funds at any time that suits you best.


2. Improve Receivables Collection

  • Implement adequate credit and collection policies to minimize overdue accounts.
  • Regularly monitor and follow up on overdue receivables.
  • Provide multiple payment options to customers to facilitate timely payments.
  • Utilize technology solutions for automated payment reminders and collection processes.

3. Enhance Payables Management

  • Negotiate favorable payment terms with suppliers to optimize cash outflows.
  • Take advantage of vendor discounts for early payments when financially beneficial.

4. Working Capital Optimization

  • Continuously monitor and analyze working capital metrics and ratios to identify areas for improvement.
  • Implement strategies to reduce working capital requirements, such as optimizing inventory levels and improving cash collection.
  • Identify opportunities to improve operational efficiency and reduce costs across the value chain.


The asset and cash conversion cycles are two of the most important factors in maximizing the value of a business.

What's more, you can identify areas where you can improve your performance, such as reducing inventory costs or increasing sales.

With these improvements, you can increase profits, improve customer satisfaction, and accelerate growth.

At Myos, we understand the importance of working with a lender you can trust.

We are committed to providing a positive borrowing experience and supporting your business every step of the way.


By partnering with Myos, you'll gain access to the financial support and expertise needed to turn your small business dreams into reality.

So, take the leap and sign up with Myos today.

Let's embark on this journey together and set your business up for long-term success!


What’s the Difference Between the Operating Cash Cycle and the Cash Conversion Cycle?

The operating cycle encompasses the entire process, from raw materials to cash collection, reflecting the company's overall operational efficiency.

The cash conversion cycle evaluates the efficiency of working capital management and the timing of cash inflows and outflows.

Is There an Ideal CCC?

No universally ideal CCC exists; it varies across industries and company-specific circumstances. However, companies typically aim to have a shorter CCC relative to their industry peers.

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