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What is the cash conversion cycle and how is the cash conversion cycle calculated?

The cash conversion cycle is a metric that is used to describe how long it takes for a company to convert its investments in inventory and other resources into cash flows from sales. The cash conversion cycle is considered a metric that expresses the length of time, in days, that is takes for a company to convert inputs into cash flows. The cash conversion cycle is computed as follows:


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    The quick ratio is a liquidity test that unlike the current ratio, excludes inventory and prepaid assets. This is considered an even more severe liquidity test than the current ratio as inventory is considered the least liquid of all current assets.