acalculator

What is my cash conversion cycle?

Enter credit sales and cost of goods sold for the period, and inventory, accounts receivable and accounts payable from the balance sheet. The calculator turns each balance into days, then adds inventory and collection days and subtracts payment days.

Your numbers

Cash conversion cycle (days)
57.18

With 36.5 days of inventory, 54.75 days to collect and 34.07 days to pay suppliers, the cash conversion cycle is 57.18 days.

Days of inventory (DIO)
36.5
Days sales outstanding (DSO)
54.75
Days payables outstanding (DPO)
34.07
Operating cycle (days)
91.25

Cash conversion cycle (days): 57.18. With 36.5 days of inventory, 54.75 days to collect and 34.07 days to pay suppliers, the cash conversion cycle is 57.18 days.

The results are estimates for information only. They are not financial, tax, or legal advice. Check the numbers with your lender or a qualified professional before you decide. Terms of use

How to calculate

Computes the cash conversion cycle in days: days of inventory plus days sales outstanding minus days payables outstanding, from sales, cost of goods sold and balances.

Example with the default inputs (Credit sales $40,000,000.00, Cost of goods sold $30,000,000.00, Inventory at the end $3,000,000.00, Accounts receivable at the end $6,000,000.00, Accounts payable at the end $2,800,000.00, Days in the period 365): With 36.5 days of inventory, 54.75 days to collect and 34.07 days to pay suppliers, the cash conversion cycle is 57.18 days.

Method: Average balance = (start + end) ÷ 2, or the end balance alone. Days of inventory = average inventory ÷ cost of goods sold × days. Days sales outstanding = average accounts receivable ÷ credit sales × days. Days payables outstanding = average accounts payable ÷ cost of goods sold × days. Cash conversion cycle = days of inventory + days sales outstanding − days payables outstanding.

  • Sales and cost of goods sold cover the period whose days you enter; the balances are from its start and end.
  • Each period equals days ÷ turnover, where turnover = sales or cost of goods sold ÷ average balance.
  • Arithmetic is exact on the typed decimals; days show to 2 decimals, halves up.

Machine-readable copies: Markdown, JSON.

Worked examples

Each example is checked against the calculator on every build.

  1. Credit sales $40,000,000.00, Cost of goods sold $30,000,000.00, Inventory at the end $3,000,000.00, Accounts receivable at the end $6,000,000.00, Accounts payable at the end $2,800,000.00, Days in the period 365 gives Cash conversion cycle (days) 57.183333, Days of inventory (DIO) 36.5, Days sales outstanding (DSO) 54.75, Days payables outstanding (DPO) 34.066667, Operating cycle (days) 91.25.Source: OpenStax, Principles of Finance, 19.1 What Is Working Capital? (cash cycle = inventory conversion period + receivables collection period − payables deferral period, each 365 ÷ turnover; King Sized Products). https://openstax.org/books/principles-finance/pages/19-1-what-is-working-capital: 36.5 + 54.7 − 34 = 57.2 days (rounded)
  2. Credit sales $40,000,000.00, Cost of goods sold $30,000,000.00, Inventory at the end $2,800,000.00, Accounts receivable at the end $5,500,000.00, Accounts payable at the end $3,300,000.00, Days in the period 365 gives Cash conversion cycle (days) 44.104167, Days of inventory (DIO) 34.066667, Days sales outstanding (DSO) 50.1875, Days payables outstanding (DPO) 40.15.Source: OpenStax, Principles of Finance, 19.1 What Is Working Capital? (cash cycle = inventory conversion period + receivables collection period − payables deferral period, each 365 ÷ turnover; King Sized Products). https://openstax.org/books/principles-finance/pages/19-1-what-is-working-capital: 34.07 + 50.21 − 40.15 = 44.10 days in Table 19.2 (rounded)
  3. Credit sales $900,000.00, Cost of goods sold $600,000.00, Inventory at the start $110,000.00, Inventory at the end $130,000.00, Accounts receivable at the start $70,000.00, Accounts receivable at the end $80,000.00, Accounts payable at the start $45,000.00, Accounts payable at the end $55,000.00, Days in the period 360 gives Cash conversion cycle (days) 72, Days of inventory (DIO) 72, Days sales outstanding (DSO) 30, Days payables outstanding (DPO) 30, Operating cycle (days) 102.Source: OpenStax, Principles of Finance, 19.1 What Is Working Capital? (cash cycle = inventory conversion period + receivables collection period − payables deferral period, each 365 ÷ turnover; King Sized Products). https://openstax.org/books/principles-finance/pages/19-1-what-is-working-capital (averages of start and end balances)
  4. Credit sales $5,000,000.00, Cost of goods sold $4,000,000.00, Inventory at the end $100,000.00, Accounts receivable at the end $50,000.00, Accounts payable at the end $900,000.00, Days in the period 365 gives Cash conversion cycle (days) -69.35, Days of inventory (DIO) 9.125, Days sales outstanding (DSO) 3.65, Days payables outstanding (DPO) 82.125, Operating cycle (days) 12.775.

How it works

  • Average balance = (balance at the start + balance at the end) ÷ 2, or the balance at the end when the start is left empty
  • Days of inventory (DIO) = average inventory ÷ cost of goods sold × days in the period
  • Days sales outstanding (DSO) = average accounts receivable ÷ credit sales × days in the period
  • Days payables outstanding (DPO) = average accounts payable ÷ cost of goods sold × days in the period
  • Operating cycle = DIO + DSO
  • Cash conversion cycle = DIO + DSO − DPO

Each period is the same as the days divided by a turnover ratio. For example, inventory turnover = cost of goods sold ÷ average inventory, and DIO = days ÷ inventory turnover.

Rules:

  • Credit sales and cost of goods sold must be more than $0. Balances are $0 or more; a $0 average gives 0 days. Each amount is at most $1 quadrillion.
  • The days in the period are a whole number from 1 to 366. Use 365 for a year of figures, or the days in a quarter or month for shorter periods.
  • The cycle may be negative.
  • A period too large to show as a number gives no answer. So does a period or cycle that is not 0 but too small to show as a number.
  • The arithmetic is exact on the decimals you type. Days show to 2 decimals, with halves rounded up (away from 0).

Assumptions

  • Sales and cost of goods sold cover the period whose days you enter, and the balances are from its start and end.
  • If you have average balances, type each average as the balance at the end and leave the start empty.

Worked examples by hand

King Sized Products. Credit sales $40,000,000, cost of goods sold $30,000,000, average inventory $3,000,000, average receivables $6,000,000, average payables $2,800,000, 365 days. DIO = 3,000,000 ÷ 30,000,000 × 365 = 36.5. DSO = 6,000,000 ÷ 40,000,000 × 365 = 54.75. DPO = 2,800,000 ÷ 30,000,000 × 365 = 34.07. Cycle = 36.5 + 54.75 − 34.07 = 57.18 days (OpenStax rounds the steps and shows 57.2).

King Sized Products after its changes. Average inventory $2,800,000, receivables $5,500,000, payables $3,300,000. DIO = 34.07, DSO = 50.19, DPO = 40.15. Cycle = 44.1 days (44.10 in OpenStax's Table 19.2).

Start and end balances. Credit sales $900,000, cost of goods sold $600,000, a 360-day year. Inventory $110,000 and $130,000 average $120,000: DIO = 120,000 ÷ 600,000 × 360 = 72. Receivables $70,000 and $80,000 average $75,000: DSO = 75,000 ÷ 900,000 × 360 = 30. Payables $45,000 and $55,000 average $50,000: DPO = 50,000 ÷ 600,000 × 360 = 30. Cycle = 72 + 30 − 30 = 72 days.

A negative cycle. Credit sales $5,000,000, cost of goods sold $4,000,000, inventory $100,000, receivables $50,000, payables $900,000, 365 days. DIO = 9.125, DSO = 3.65, DPO = 82.125. Cycle = −69.35 days.

Other questions people ask

What is the cash conversion cycle?

The cash conversion cycle (CCC), or cash cycle, is the number of days between paying suppliers for inventory and collecting cash from customers for the goods made from it. The shorter it is, the less cash a business has tied up in running its operations.

How do I calculate the cash conversion cycle?

Add days of inventory and days sales outstanding, then subtract days payables outstanding. King Sized Products held inventory 36.5 days, collected from customers in 54.75 days and paid suppliers in 34.07 days, so its cycle was 36.5 + 54.75 − 34.07 = 57.18 days.

How do I calculate days of inventory, DSO and DPO?

Divide each average balance by its flow for the period and multiply by the days: inventory and accounts payable by cost of goods sold, accounts receivable by credit sales. This is the same as dividing the days by each turnover ratio.

What is a good cash conversion cycle?

Shorter is better: less money waits in inventory and receivables. Compare with similar businesses and with your own past periods. Holding less inventory, collecting faster and paying suppliers later all shorten the cycle.

Can the cash conversion cycle be negative?

Yes. A business that sells quickly, is paid at once and pays suppliers weeks later collects cash before it pays for the goods. With 9.13 days of inventory, 3.65 days to collect and 82.13 days to pay, the cycle is −69.35 days.

What is the difference between the operating cycle and the cash conversion cycle?

The operating cycle is days of inventory plus days sales outstanding: the time from buying goods to collecting cash for them. The cash conversion cycle subtracts the days the business takes to pay its suppliers, because those days are financed by the suppliers.