Cash conversion cycle

What it means

The time between paying for inventory and collecting cash from the customer.

The exam angle

A negative cycle means suppliers fund the business. Retailers and marketplaces often run one.

Where it appears in the syllabus

• Corporate FinanceCFA Level I · exam weight 6–9% · Governance, working capital, capital allocation, capital structure.
• Financial Statement AnalysisCFA Level I · exam weight 11–14% · The three statements, inventories, long-lived assets, quality of earnings.

Related terms

• Financial leverageThe use of debt to finance assets, magnifying returns to equity in both directions.
• Operating leverageThe sensitivity of operating income to a change in sales, driven by the proportion of fixed costs.
• Working capitalCurrent assets less current liabilities — the short-term capital tied up in operations.
• Agency problemThe conflict that arises when managers act in their own interest rather than that of the owners who employ them.
• Business riskThe uncertainty in operating income arising from the nature of the business itself, before any financing decision.
• Capital budgetingThe process of deciding which long-term investments a company should make.