Liquidity and the Cash Conversion Cycle
Liquidity and the Cash Conversion Cycle
In corporate finance, one of the most important questions is how quickly a company can turn its investments into cash. Even highly profitable firms can run into trouble if their cash is tied up in receivables or inventory for too long, or if they cannot pay suppliers on time.
Enter, the Cash Conversion Cycle. Take a look at a quick overview, here 👉
Liquidity Ratios
Current Ratio
Quick Ratio
Cash Ratio
These ratios measure whether a firm has enough short-term assets to cover its short-term obligations. They give a first check on solvency risk: does the company have the cash, receivables, and inventory to keep operations running smoothly?
Cash Conversion Cycle (CCC)
Combines Days Inventory Outstanding (DIO), Days Sales Outstanding (DSO), and Days Payables Outstanding (DPO).
The CCC captures the net number of days between when a company pays cash to its suppliers and when it collects cash from its customers.
A shorter CCC means cash is freed up quickly to reinvest in the business; a longer CCC can signal potential liquidity strain.
Get a quick intro to Python and Google Colab (no prior coding required).
Use small, clean datasets to compute liquidity ratios and CCC.
Pull real company financials using yfinance and see how liquidity changes across quarters.
Visualize trends and interpret what they mean in practice.
👉 The goal here is to connect financial statements with real-world decision making.