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    Corporate finance / Working capital

    Working capital and cash cycle

    How many days of cash the operating cycle absorbs, and how much money that is. Inventory, receivables and payables, each against its own base, then the cash released by shortening the cycle.

    CycleCash absorbedTied up$1.83M10 days$274.0k
    Cash conversion cycle
    67 days
    DIO + DSO − DPO
    Days inventory
    61 d
    6.0 turns
    Days sales outstanding
    55 d
    Receivables over revenue
    Days payable
    49 d
    Payables over COGS
    Working capital cycle
    Each leg against its own base — COGS for inventory and payables, revenue for receivables.
    Working capital cycle
    LegDaysBase
    Inventory (DIO)60.8COGS
    Receivables (DSO)54.8Revenue
    Payables (DPO)48.7COGS
    Cash conversion cycle66.9—

    DIO and DPO use cost of goods sold; DSO uses revenue. That is the standard definition.

    Inspect the model
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    Cash tied up by cycle length
    Every ten days of cycle is roughly one monthly revenue of funding.
    Cash tied up by cycle length-1.210.0281.272.513.765.00-0.820-30 d-30 d0.0000 d0 d0.82030 d30 d1.6460 d60 d2.4790 d90 d3.29120 d120 d4.11150 d150 d$M
    Canonical equations
    The exact relationships implemented by this engine.

    CCC = DIO + DSO − DPO · Days the business funds its own operations.

    DIO = inventory / COGS × 365 · COGS, not revenue.

    CCC × revenue / 365 · An estimate of the funding need.

    finance methodology

    A clear path from inputs to results.

    The cash conversion cycle is how many days the business funds its own operations before the customer pays. It is the difference between a profitable company that runs out of cash and one that does not.

    Step-by-step methodWorked exampleAssumptions explained

    How to use

    1. Enter revenue, cost of goods and the average balance-sheet figures.
    2. Read the three legs and the cycle.
    3. Check the cash tied up and what ten days would release.

    The formula

    CCC=DIO+DSO−DPOCCC = DIO + DSO - DPO

    Reference: DIO and DPO against COGS, DSO against revenue (Brigham & Ehrhardt, Financial Management, ratio analysis).

    Worked example

    $10M revenue, $6M COGS

    Inputs
    • Inventory $1M, receivables $1.5M, payables $0.8M.
    Calculation path
    1. 1

      DIO = 60.8 d, DSO = 54.8 d, DPO = 48.7 d. CCC = 66.9 days. Cash tied up = 66.9 × 10M/365 = $1.83M.

    Result

    67-day cycle absorbing $1.8M.

    Interpreting the result

    A negative cycle — paid by customers before suppliers are paid — is the retail and subscription model, and it is why those businesses can grow without much capital.

    Assumptions & limitations

    • Balances are period averages, not closing figures.
    • 365-day year.
    • COGS is the base for inventory and payables.
    • No seasonal decomposition.

    Frequently asked questions

    Why not measure inventory against revenue?

    It mixes margin into an operating metric; COGS is the cost of what is actually sitting in the warehouse.

    Does stretching payables always help?

    It improves the cycle but can cost supplier discounts and reliability.

    What is a good cycle?

    Depends on the industry: grocery runs negative, aerospace can exceed 200 days.

    How much cash does a day save?

    One day of revenue, which is why a ten-day improvement is worth about a month of sales.

    Methodology last reviewed 2026-10-22. Results are informational and not financial or engineering advice — see our disclaimer.