Cash Conversion Cycle Calculator

How many days a business waits between paying its suppliers and collecting from its customers: days inventory, days sales outstanding and days payables, with inventory and receivables turnover.

Days inventory, days sales, days payables

Reading the cycle, and when it goes negative

A trading business pays for stock, holds it, sells it — often on credit — and waits to be paid. The cash conversion cycle counts the days of that wait that the business has to fund itself. Days inventory outstanding is how long stock sits before it is sold; days sales outstanding is how long customers take to pay; days payables outstanding is how long the business takes to pay its suppliers. The first two together are the operating cycle; subtracting the third leaves the gap the business must finance, from its own cash or a working-capital loan. In the example that gap is 70.0 days.

Each “days” figure is the period’s length divided by a turnover ratio, as in the OpenStax finance text: stock turns over 6 times a year, so it sits for about 61 days. Shortening any leg frees cash. Collecting ten days sooner releases ten days of sales — $3,28,767 in the example — which the result shows for your own figures. Paying suppliers later does the same, but squeezes them and can cost early-payment discounts; in India, section 15 of the MSMED Act, 2006 caps the credit period a buyer may take from a micro or small supplier at 45 days.

A negative cycle means customers pay before the suppliers are paid. Supermarkets, restaurants and online retailers that are paid at once, turn stock quickly and buy on 30 to 60 days’ credit can run this way; the OpenStax text cites Amazon. Suppliers are then, in effect, financing the business, and growth generates cash rather than consuming it — until sales slow and the payables still fall due. Businesses selling on long credit, such as construction or capital goods, run long cycles by nature.

Use averages over the same period as the revenue and cost figures, and credit sales for days sales outstanding if some customers pay cash. Seasonal businesses give very different answers at different year-ends. For the balance-sheet view of the same working capital, use the current ratio calculator; for how long the cash itself lasts, the burn rate and runway calculator. This is arithmetic on the figures you enter, not financial advice.

Frequently asked questions

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References

1. Dahlquist J, Knight R. Principles of Finance. OpenStax, Rice University, 2022. Section 19.1, What Is Working Capital?: inventory conversion period = 365 ÷ inventory turnover; receivables collection period = 365 ÷ receivables turnover; payables deferral period = 365 ÷ (cost of goods sold ÷ average payables); cash cycle = inventory period + receivables period − payables period; a negative cycle means receiving payment before paying suppliers.
2. Dahlquist J, Knight R. Principles of Finance. OpenStax, Rice University, 2022. Section 6.2 (operating efficiency: inventory turnover = cost of goods sold ÷ average inventory; receivables turnover = credit sales ÷ average receivables), section 6.4 (solvency: debt-to-assets = total liabilities ÷ total assets; debt-to-equity = total liabilities ÷ total stockholders’ equity; times interest earned = EBIT ÷ interest expense) and section 6.6 (return on assets and on equity on average balances; the DuPont method: profit margin × total asset turnover × equity multiplier).
3. Government of India. Micro, Small and Medium Enterprises Development Act, 2006, section 15: a buyer must pay a micro or small enterprise supplier by the agreed date, and the agreed period “shall in no case exceed forty-five days” from acceptance of the goods or services; section 16 adds compound interest at three times the RBI bank rate on late payment.