What does the cash conversion cycle (CCC) measure?

The cash conversion cycle (CCC) is an important financial metric that measures how long it takes for a company to convert its investments in inventory and other resources into cash flows from sales. Specifically, it calculates the time taken between outlaying cash for inventory and receiving cash from product sales.

The CCC is determined by measuring three key components: the time it takes to sell inventory (days inventory outstanding), the time it takes to collect receivables (days sales outstanding), and the time it takes to pay for purchases (days payable outstanding). The overall cycle reflects the efficiency of a company in managing its working capital and helps businesses assess their liquidity position.

The other options do not accurately describe the cash conversion cycle. For example, measuring the time to convert liabilities into cash, replenishing inventory, or the collection of dividends does not capture the essence of how quickly a business can turn its operational assets into cash. Therefore, the correct answer robustly defines the CCC as the duration required to transform a company's investments back into cash from sales, highlighting its essential role in financial analysis and operational management.