Cash conversion cycle calculator: how long is your cash tied up?
The cash conversion cycle (CCC) is the number of days between paying suppliers for stock and collecting cash from customers: days inventory outstanding plus days sales outstanding minus days payables outstanding. With 61 days in stock, 46 days to collect and 42 days to pay, the cycle is about 64 days.
Calculate your cash conversion cycle and working capital
Average balance for the period if you have it
Average balance for the period if you have it
Average balance for the period if you have it
Results
- Cash conversion cycle
- 64.3 days
- Days inventory outstanding (DIO)
- 60.8 days
- Days sales outstanding (DSO)
- 45.6 days
- Days payables outstanding (DPO)
- 42.1 days
- Working capital
- 140,000.00
- Current ratio
- 1.7 ×
Days of operations you finance yourself before customers pay.
Current assets minus current liabilities.
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Cash conversion cycle formula
Each part converts a balance sheet item into days of activity. Inventory and payables are measured against cost of goods sold; receivables against revenue.
- Days inventory outstanding
- DIO = Inventory / COGS × Days
- Days sales outstanding
- DSO = Receivables / Revenue × Days
- Days payables outstanding
- DPO = Payables / COGS × Days
- Cash conversion cycle
- CCC = DIO + DSO - DPO
- Working capital
- WC = Current assets - Current liabilities
Some analysts compute DPO on purchases instead of cost of goods sold. Use the same definition every period so the trend is meaningful.
Worked example: a wholesaler
A wholesaler has annual revenue of 1,200,000 and cost of goods sold of 780,000. On average it holds 130,000 of inventory, is owed 150,000 by customers and owes suppliers 90,000.
DIO is 130,000 / 780,000 × 365 = 60.8 days, DSO is 150,000 / 1,200,000 × 365 = 45.6 days and DPO is 90,000 / 780,000 × 365 = 42.1 days. The cash conversion cycle is 60.8 + 45.6 - 42.1 = 64.3 days. Collecting from customers 10 days sooner would release about 1,200,000 / 365 × 10 ≈ 32,900 of cash.
| Component | Balance | Measured against | Days |
|---|---|---|---|
| Inventory (DIO) | 130,000 | COGS 780,000 | 60.8 |
| Receivables (DSO) | 150,000 | Revenue 1,200,000 | 45.6 |
| Payables (DPO) | 90,000 | COGS 780,000 | -42.1 |
| Cash conversion cycle | 64.3 |
Assumptions behind the result
- Revenue is mostly on credit; cash sales shorten the real collection period, so use credit sales if you can separate them.
- Balances are averages for the period, or at least representative of it.
- Receivables and payables are trade balances only, net of VAT where possible.
- The same number of days is used for every component.
What is a good cash conversion cycle?
Shorter is better, as long as it does not cost you sales or supplier goodwill. Retailers that sell for cash and pay suppliers on 60 days can run a negative cycle, while manufacturers with long production and credit terms often run 90 days or more.
Track the trend: a cycle that grows by 15 days while sales stay flat means more cash is stuck in stock or with customers, and you will feel it in the bank balance before you see it in profit.
Working capital vs cash conversion cycle
Working capital is an amount: current assets minus current liabilities on the balance sheet date. The cash conversion cycle is a duration: how long each unit of cash spent on operations takes to come back.
Together they answer two questions: how big your short-term cushion is today, and how fast the business turns purchases back into cash. A growing business with a long cycle needs more working capital every month, which is why profitable companies can still run out of cash.
Ways to shorten the cycle
Each component has its own levers.
- Inventory: reduce slow movers and order closer to demand; see the inventory turnover calculator.
- Receivables: invoice on delivery, follow up overdue accounts weekly and offer easy payment methods.
- Payables: agree terms that match your own cycle and pay on the due date, not early, unless a discount is worth it.
- Review customer credit limits with an ageing report of party balances.
How to calculate the cash conversion cycle
- 1
Collect the figures
Take revenue and cost of goods sold for the period and the average inventory, receivables and payables balances.
- 2
Compute DIO
Divide inventory by cost of goods sold and multiply by the days in the period.
- 3
Compute DSO
Divide receivables by revenue and multiply by the days in the period.
- 4
Compute DPO
Divide payables by cost of goods sold and multiply by the days in the period.
- 5
Combine
Add DIO and DSO and subtract DPO to get the cash conversion cycle.
Frequently asked questions
What does a negative cash conversion cycle mean?
It means you collect from customers before you pay suppliers, so suppliers effectively finance your inventory. Supermarkets and online marketplaces often work this way.
What is the difference between the operating cycle and the cash conversion cycle?
The operating cycle is DIO plus DSO: the time from buying stock to collecting cash from its sale. The cash conversion cycle subtracts the time you take to pay suppliers, so it measures only the days you finance yourself.
Is a long cash conversion cycle always bad?
Not necessarily. Some industries need long production times or offer long credit to win customers. The question is whether you have the working capital or financing to support it and whether it is getting longer.
Should a service business calculate the cash conversion cycle?
Yes, without the inventory part. For a service business with no stock, the cycle is DSO minus DPO, and work in progress that has not been billed yet can be treated like inventory.
How is working capital different from cash?
Working capital includes receivables, inventory and prepayments as well as cash, minus short-term liabilities. A business can have positive working capital and still be short of cash if most of it sits in stock and receivables.
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