Cash Conversion Cycle and Working Capital Analysis
Analyse how inventory, receivables and payables bind cash. Compute DIO, DSO, DPO and CCC, then measure working-capital need and the cash effect of improvement scenarios.
Measure how long cash is tied in inventory, receivables and payables. Read DIO, DSO, DPO and CCC, then convert day improvements into working-capital cash effects.
CCC is not a credit score. It varies by sector, seasonality and business model. A negative CCC can be normal; a higher DPO is not automatically better; a lower DIO is not automatically safer.
Results
Notes on the cash conversion cycle
What is the cash conversion cycle?
CCC = DIO + DSO − DPO. It is the net number of days cash stays in the operating cycle after supplier credit.
What is DIO?
Average inventory / COGS × days: how long stock stays in the business.
What is DSO?
Average trade receivables / credit (or net) sales × days: collection lag after a sale.
What is DPO?
Average trade payables / purchases × days: how long suppliers finance the firm.
Operating cycle versus CCC?
Operating cycle is DIO + DSO. CCC subtracts DPO, so supplier credit is visible as a financing offset.
How is CCC calculated?
Compute (or enter) DIO, DSO and DPO on a consistent day-count, then CCC = DIO + DSO − DPO. Negative values are allowed.
Why does CCC matter?
A longer CCC usually means more cash tied in operations and a larger financing need, holding volume fixed.
How is the cash effect of one CCC day calculated?
Not as CCC × daily sales. Use COGS/days for inventory, credit sales/days for receivables, purchases/days for payables, then add those three.
What does a negative CCC mean?
Collections may occur before supplier payment. Some models run that way; it is not a universal quality grade.
Why is CCC not enough in a fast-growing firm?
If days are unchanged, larger sales and costs still require more inventory, receivables and (partly offsetting) payables in money terms.
How can DIO, DSO and DPO be improved?
Inventory policy and mix; credit terms and collection; supplier terms and discounts. Each move has an operational cost that this tool does not score.
Limits of CCC
- CCC differs widely across sectors; there is no universal “good” number.
- A negative CCC can be normal in some business models.
- A high DPO is not automatically favourable.
- A low DIO is not automatically favourable.
- A low DSO may signal an overly tight credit policy.
- Seasonality can distort period-end balances.
- Average balances usually give a healthier reading.
- Mergers and rapid growth can mislead period comparisons.
Simplifying assumptions
- Averages use (opening + closing) / 2 unless you choose period-end only.
- Cash effects use COGS, credit/net sales and purchases as separate bases so DIO, DSO and DPO are not double-counted.
- Financing cost is OWC × a user rate — an indicative carrying cost, not a bank quote.
- There is no universal “good” CCC. Enter your own targets; no fake sector average is shown.
- DPO potential is not a recommendation to stretch suppliers.
This calculator is for education and decision support. Results follow from your inputs and are not a credit opinion or treasury instruction.