How to use the cash conversion cycle calculator
- Enter the days in the period: 365 for a year, or about 90 for a quarter.
- Enter sales and cost of goods sold for that period.
- Enter your average inventory, average accounts receivable and average accounts payable over the period.
- Read the cash conversion cycle in days, with the three parts, days inventory outstanding, days sales outstanding and days payables outstanding. Copy, Print or export the CSV.
Formula
DIO = average inventory / cost of goods sold x days
DSO = average receivables / sales x days
DPO = average payables / cost of goods sold x days
cash conversion cycle = DIO + DSO - DPO
A negative cycle is shown in parentheses and means suppliers are paid later than stock sells and customers pay. Some analysts compute DPO from purchases instead of cost of goods sold.
A year of example figures
With sales of $1,200,000, cost of goods sold of $780,000, average inventory of $130,000, receivables of $165,000 and payables of $95,000 over 365 days: DIO = 130,000 / 780,000 x 365 = 60.8 days, DSO = 165,000 / 1,200,000 x 365 = 50.2 days and DPO = 95,000 / 780,000 x 365 = 44.5 days.
The cycle is 60.8 + 50.2 - 44.5 = 66.6 days. If payables were $400,000 instead, DPO would be 187.2 days and the cycle would be (76.2 days), shown in parentheses.
What the cycle measures
The cash conversion cycle is the number of days between paying for the stock you sell and collecting the cash from selling it. A shorter cycle means less cash is tied up in running the business, and a longer one means you need more working capital to fund growth.
You can shorten it by moving stock faster, collecting from customers sooner or paying suppliers later. Each lever has costs: stock outs, strained customers or strained suppliers.
Averages and definitions
Use the average of the opening and closing balances over the period, since year-end balances can be unusual. Use cost of goods sold for inventory and payables, and sales for receivables, as the formulas show. If your business holds no inventory, enter a small amount or zero, and expect the cycle to be driven by receivables and payables.
No benchmark is built in, because usual cycles differ widely between industries. See also the days sales outstanding calculator, the accounts payable turnover calculator, the working capital calculator and the inventory turnover calculator.
Assumptions and limits
- Sales and cost of goods sold must be more than zero. Inventory, receivables and payables can be zero or more.
- The days in the period are a whole number from 1 to 3,660.
- The formulas use cost of goods sold for payables. Other conventions use purchases.
- This is an accounting calculation, not financial advice. Nothing is stored or uploaded.
Frequently asked questions
What is the cash conversion cycle?
It is the number of days between paying suppliers for inventory and collecting cash from customers for the sale. It is days inventory outstanding plus days sales outstanding, minus days payables outstanding.
What does a negative cash conversion cycle mean?
It means the business collects cash from customers before it has to pay its suppliers, so suppliers are effectively financing operations. The page shows a negative number in parentheses.
Which numbers should I use for inventory, receivables and payables?
Use the average balance over the period, often the average of the opening and closing figures. Year-end balances alone can be unrepresentative if business is seasonal.
Should payables use cost of goods sold or purchases?
Both are used. This page uses cost of goods sold so the three parts line up on one basis. If you prefer purchases, calculate that part separately.