Working capital connects three different clocks.
Customers pay after a sale, inventory is held before it is sold, and suppliers may be paid before or after both events. The cash conversion cycle combines these timings rather than treating each balance-sheet ratio as an isolated score.
This calculator uses average receivables divided by credit sales for DSO, average inventory divided by COGS for DIO, and average trade payables divided by credit purchases for DPO. Each denominator measures a different flow. Multiplying the entire cycle by revenue per day would therefore not correctly calculate the capital tied up.
The formula, made clear.
- DSO
- Receivables expressed as equivalent days of credit sales.
- DIO
- Inventory expressed as equivalent days of cost of goods sold.
- DPO
- Payables expressed as equivalent days of applicable credit purchases.
- Cash conversion cycle
- Inventory days plus collection days less supplier payment days; can be negative.
Put the numbers in context.
With 60 days receivables, 80 days inventory and 60 days payables, the cash conversion cycle is 80 days. Receivables, inventory and payables must still be valued using their own sales, cost and purchasing flows.
| Input | Example value |
|---|---|
| Average trade receivables | $120,000.00 |
| Average inventory | $80,000.00 |
| Average trade payables | $60,000.00 |
| Period credit sales | $730,000.00 |
| Period cost of goods sold | $365,000.00 |
| Period credit purchases | $365,000.00 |
| Days in the measurement period | 365 days |
| Cash conversion cycle in days | 80 |
What this calculation assumes
Consistent period, scope, tax treatment and average balances. Seasonal businesses may require monthly or weighted average balances rather than a two-date average. COGS is not silently substituted for credit purchases. A zero flow denominator leaves that ratio and the combined cycle undefined, even when its balance is also zero. Cash-only or inventory-free businesses should interpret the applicable component ratios separately. Negative CCC is possible and does not establish solvency.
Methodology references
What to consider next.
Use the component days to estimate the cash required for growth or improved collection terms. Reconcile the operating balance sheet separately from reported current assets and current liabilities.
How we approach financial models →