Can someone help explain the difference between the Operating Cycle vs the Cash Conversion Cycle.
As I understand it, and based on definitions:
Operating Cycle = days of inventory + days of receivables
so, you spent $100 on inventory, it sits there for 20 days average until you sell the product, at which point it takes average of 10 days to collect cash. So the O.C. is 20 + 10 = 30 days. Is that right?
Cash Conversion Cycle:
C.C.C.= avg days of receivables + avg days of inventory - average days of payables
So using the same example, its the same but you take off the avg days of payables. But what is that telling you exactly? So say, it takes you 5 days average to pay your supplier, the CCC is 30 - 5 = 25. What’s the insight here exactly and what extra useful info are we getting to the O.C. calculated above.