A cash conversion cycle calculator adds the days cash sits in inventory and in unpaid invoices, then subtracts the days you take to pay suppliers.
The SBA glossary defines Days Receivable as accounts receivable divided by annual sales on credit, times 365, and Days Payable as accounts payable divided by annual credit purchases, times 365. Inventory days invert the turnover ratio from an SEC computation of ratios exhibit: days divided by cost of sales over average inventory. Average inventory is the beginning balance plus the ending balance, divided by two.
The cash conversion cycle calculator writes that as:
Inventory days = days ÷ (COGS ÷ average inventory)
DSO = receivables ÷ credit sales × days
DPO = payables ÷ credit purchases × days
Cycle = inventory days + DSO − DPO
Each leg has its own page. Inventory days are the inventory turnover calculator and the turnover post. Receivable days are the days sales outstanding calculator and the DSO post. Payable days are the days payable outstanding calculator. The dollar cushion is the working capital post.
The page rounds each leg and the cycle to one decimal. It adds the unrounded days, then rounds. When you add the printed legs by hand, the last tenth can differ by 0.1. Example 10 is one of those.
These examples use that formula. They are not a cash forecast, and they are not business advice.
Fig 1
Three legs, one cycle
Payables come off at the end
Add inventory days and days sales outstanding. Subtract days payable outstanding. A negative result means the payable leg is longer than the other two combined.
How to read the cycle
The cycle is a count of days, not a dollar balance. A shorter cycle means the operating loop returns cash sooner on these inputs. A negative cycle means payable days are longer than inventory days plus receivable days. Vendors are funding the stock and the invoices in the arithmetic. That can be the terms you have, or a payable balance stretched past those terms. The formula does not say which.
Keep inventory and cost of goods sold on the same cost basis. Credit sales belong with receivables. Credit purchases belong with payables. Purchases and cost of goods sold can differ when stock is building or shrinking. Example 10 leaves them apart on purpose.
Example 1: the calculator defaults
Inputs:
- beginning inventory: $80,000
- ending inventory: $100,000
- cost of goods sold: $360,000
- accounts receivable: $30,000
- annual credit sales: $365,000
- accounts payable: $30,000
- annual credit purchases: $365,000
- days: 365
Average inventory: (80,000 + 100,000) ÷ 2 = $90,000.00
Inventory turns: 360,000 ÷ 90,000 = 4
Inventory days: 365 ÷ 4 = 91.25, shown as 91.3 days
DSO: 30,000 ÷ 365,000 × 365 = 30 days
DPO: 30,000 ÷ 365,000 × 365 = 30 days
Cycle: 91.25 + 30 − 30 = 91.25, shown as 91.3 days
Calculator result
Cash conversion cycle
- Beginning inventory
- $80,000.00
- Ending inventory
- $100,000.00
- Cost of goods sold
- $360,000.00
- Accounts receivable
- $30,000.00
- Annual credit sales
- $365,000.00
- Accounts payable
- $30,000.00
- Annual credit purchases
- $365,000.00
- Days in the period
- 365 days
91.3 days
cash conversion cycle
- Days of inventory
- 91.3 days
- Days sales outstanding
- 30 days
- Days payable outstanding
- 30 days
The payable leg and the receivable leg cancel. The cycle equals the inventory wait. Customers take 30 days. You take 30 days with vendors. The stock is the part that still ties up cash.
Fig 2 · 1/3
The default cycle is the inventory wait
DSO and DPO are both 30 days, so they cancel.
Inventory
91.3 days
Plus DSO
Receivable days next
30 days
Cycle
After payables
91.3 days
Inventory sits 91.3 days.
After a 30-day DSO and a 30-day DPO, the cycle is still 91.3 days.
Example 2: you buy mostly for cash
Hold Example 1. Change accounts payable from $30,000 to $5,000. Purchases stay $365,000.
Inventory days stay 91.3. DSO stays 30 days.
DPO: 5,000 ÷ 365,000 × 365 = 5 days
Cycle: 91.25 + 30 − 5 = 116.25, shown as 116.3 days
Calculator result
Cash conversion cycle
- Accounts payable
- $5,000.00
116.3 days
cash conversion cycle
- Days of inventory
- 91.3 days
- Days sales outstanding
- 30 days
- Days payable outstanding
- 5 days
The cycle grew by 116.25 − 91.25 = 25 days, which is the payable leg you gave up: 30 − 5 = 25. Paying suppliers in five days, while customers take 30 and stock sits 91.3, lengthens the cash gap by those 25 days.
Example 3: a negative cycle
Inputs: beginning inventory $20,000, ending inventory $20,000, cost of goods sold $400,000, receivables $15,000, credit sales $600,000, payables $80,000, credit purchases $400,000, days 365.
Average inventory: $20,000.00
Inventory days: 365 ÷ (400,000 ÷ 20,000) = 365 ÷ 20 = 18.25, shown as 18.3 days
DSO: 15,000 ÷ 600,000 × 365 = 9.125, shown as 9.1 days
DPO: 80,000 ÷ 400,000 × 365 = 73 days
Cycle: 18.25 + 9.125 − 73 = −45.625, shown as −45.6 days
Calculator result
Cash conversion cycle
- Beginning inventory
- $20,000.00
- Ending inventory
- $20,000.00
- Cost of goods sold
- $400,000.00
- Accounts receivable
- $15,000.00
- Annual credit sales
- $600,000.00
- Accounts payable
- $80,000.00
- Annual credit purchases
- $400,000.00
-45.6 days
cash conversion cycle
- Days of inventory
- 18.3 days
- Days sales outstanding
- 9.1 days
- Days payable outstanding
- 73 days
Printed legs: 18.3 + 9.1 − 73 = −45.6. They match the rounded cycle on this one. Payable days are longer than the other two legs combined. 73 − 18.3 − 9.1 = 45.6, the same gap with the sign flipped.
Example 4: what if payables double
Hold Example 1 and change only payables, from $30,000 to $60,000.
Inventory days stay 91.3. DSO stays 30 days.
DPO: 60,000 ÷ 365,000 × 365 = 60 days
Cycle: 91.25 + 30 − 60 = 61.25, shown as 61.3 days
The cycle is 91.25 − 61.25 = 30 days shorter than Example 1. That 30 days is the extra payable wait: 60 − 30 = 30. Stretching payables shortens the cycle in the formula. It does not say the vendor agreed to the longer wait.
Example 5: the mistake of skipping the average inventory
Hold every default except the inventory pair. Type beginning and ending both as the ending balance, $100,000, so the average never sees the $80,000 start.
Average: $100,000.00
Turns: 360,000 ÷ 100,000 = 3.6
Inventory days: 365 ÷ 3.6 = 101.388, shown as 101.4 days
DSO stays 30 days. DPO stays 30 days.
Cycle: 101.388 + 30 − 30 = 101.388, shown as 101.4 days
Example 1’s cycle is 91.3 days. The printed gap is 101.4 − 91.3 = 10.1 days. The SEC average uses both balances. Using only the close made the stock look slower, and the whole cycle moved with it.
Example 6: the mistake of adding the payable days
Read Example 1’s three printed legs and add all three: 91.3 + 30 + 30 = 151.3 days.
The formula subtracts the third leg. 91.3 + 30 − 30 = 91.3 days, which is the page’s cycle. Adding a number the formula subtracts moves the result by twice that number. 151.3 − 91.3 = 60 days, and 30 × 2 = 60.
Example 7: a 90-day season
Inputs: beginning $150,000, ending $90,000, cost of goods sold $120,000, receivables $40,000, credit sales $150,000, payables $50,000, credit purchases $100,000, days 90.
Average inventory: (150,000 + 90,000) ÷ 2 = $120,000.00
Inventory days: 90 ÷ (120,000 ÷ 120,000) = 90 ÷ 1 = 90 days
DSO: 40,000 ÷ 150,000 × 90 = 24 days
DPO: 50,000 ÷ 100,000 × 90 = 45 days
Cycle: 90 + 24 − 45 = 69 days
Stock sat the whole 90-day window on this average. Customers took 24 days. Suppliers funded 45. The cycle is 69 days inside a 90-day season. Do not multiply 69 by 4 and call it a year. Type 365 and the year’s own eight inputs when you want a year.
Example 8: a slow manufacturing year
Inputs: beginning $250,000, ending $270,000, cost of goods sold $520,000, receivables $90,000, credit sales $800,000, payables $40,000, credit purchases $500,000, days 365.
Average inventory: (250,000 + 270,000) ÷ 2 = $260,000.00
Inventory days: 365 ÷ (520,000 ÷ 260,000) = 365 ÷ 2 = 182.5 days
DSO: 90,000 ÷ 800,000 × 365 = 41.0625, shown as 41.1 days
DPO: 40,000 ÷ 500,000 × 365 = 29.2 days
Cycle: 182.5 + 41.0625 − 29.2 = 194.3625, shown as 194.4 days
The printed legs add as 182.5 + 41.1 − 29.2 = 194.4. They match. Inventory is 182.5 ÷ 194.4 = 93.9% of that printed cycle. Receivables add 41.1 days. Payables take 29.2 days off. The long leg is the stock.
Example 9: a small shop year
Inputs: beginning $8,000, ending $12,000, cost of goods sold $60,000, receivables $5,000, credit sales $90,000, payables $4,000, credit purchases $60,000, days 365.
Average inventory: (8,000 + 12,000) ÷ 2 = $10,000.00
Inventory days: 365 ÷ (60,000 ÷ 10,000) = 365 ÷ 6 = 60.833, shown as 60.8 days
DSO: 5,000 ÷ 90,000 × 365 = 20.277, shown as 20.3 days
DPO: 4,000 ÷ 60,000 × 365 = 24.333, shown as 24.3 days
Cycle: 60.833 + 20.277 − 24.333 = 56.777, shown as 56.8 days
Printed check: 60.8 + 20.3 − 24.3 = 56.8. The dollars are a shop’s. The cycle is still inventory days plus DSO minus DPO. Payables run a few days longer than receivables, so they shave 24.3 − 20.3 = 4 days off the inventory wait before rounding.
Fig 3 · 1/3
The three legs
Days. The cycle subtracts the payable bar from the other two.
Days
- Inventory
- DSO
- DPO
| Category | Inventory | DSO | DPO |
|---|---|---|---|
| Default | 91.3 | 30 | 30 |
| Pay cash | 91.3 | 30 | 5 |
| Stretch | 91.3 | 30 | 60 |
| Quarter | 90 | 24 | 45 |
| Shop | 60.8 | 20.3 | 24.3 |
The default inventory leg is 91.3 days, with DSO and DPO both at 30.
Paying cash drops DPO to 5 days. Stretching payables lifts DPO to 60.
Example 10: purchases far from cost of goods sold
Inputs: beginning $40,000, ending $100,000, cost of goods sold $180,000, receivables $20,000, credit sales $250,000, payables $45,000, credit purchases $280,000, days 365.
Average inventory: (40,000 + 100,000) ÷ 2 = $70,000.00
The stock grew. Ending minus beginning is 100,000 − 40,000 = $60,000.00. Purchases are $280,000 and cost of goods sold is $180,000. The gap is 280,000 − 180,000 = $100,000.00. Those two gaps do not have to match. Purchases belong with payables. Cost of goods sold belongs with inventory days. Leave them on their own lines.
Inventory days: 365 ÷ (180,000 ÷ 70,000) = 141.944, shown as 141.9 days
DSO: 20,000 ÷ 250,000 × 365 = 29.2 days
DPO: 45,000 ÷ 280,000 × 365 = 58.6607, shown as 58.7 days
Cycle: 141.944 + 29.2 − 58.6607 = 112.483, shown as 112.5 days
Add the printed legs and you get 141.9 + 29.2 − 58.7 = 112.4. The page’s cycle is 112.5, because it rounded after the sum. The tenth comes from 141.944 rounding down to 141.9 and 58.6607 rounding up to 58.7. Both of those roundings shorten the hand total. Use the cycle line the calculator prints.
Fig 4 · 1/3
Cash conversion cycle
Positive cycles. Example 3 is −45.6 days and stays in the table.
Cycle in days
Default
91.3
Pay cash
116.3
Stretch
61.3
The default cycle is 91.3 days.
Paying cash lengthens it to 116.3 days. A doubled payable balance shortens it to 61.3.
The ten results side by side
| Example | Inventory days | DSO | DPO | Cycle |
|---|---|---|---|---|
| 1. Defaults | 91.3 | 30 | 30 | 91.3 |
| 2. Pay cash | 91.3 | 30 | 5 | 116.3 |
| 3. Negative cycle | 18.3 | 9.1 | 73 | −45.6 |
| 4. Payables doubled | 91.3 | 30 | 60 | 61.3 |
| 5. Ending balance only | 101.4 | 30 | 30 | 101.4 |
| 6. Add DPO by mistake | 91.3 | 30 | 30 | 151.3 wrong |
| 7. 90-day season | 90 | 24 | 45 | 69 |
| 8. Manufacturing year | 182.5 | 41.1 | 29.2 | 194.4 |
| 9. Small shop | 60.8 | 20.3 | 24.3 | 56.8 |
| 10. Stock building | 141.9 | 29.2 | 58.7 | 112.5 |
Example 6’s 151.3 is the three printed default legs added together. The formula on that book is 91.3. Example 5 is a real calculator run that dropped the beginning balance. Example 10’s hand sum of the printed legs is 112.4, and the calculator’s cycle is 112.5.
A negative cycle is still a result of the same subtraction. It is not a target the glossary sets. If you want the dollars behind a short cycle, put the same inventory, receivables, and payables into the working capital page and read the cushion beside the days.