Free tool
Cash conversion cycle calculator
See how long cash stays tied up between paying suppliers and collecting from customers.
Your cash-cycle days
The annual amounts turn a one-day change into a rough cash amount. These are illustrative inputs; use your own accounts for a real decision.
Cash conversion cycle
50 days
- One less inventory day
- About $1,000 released
- One less receivables day
- About $2,000 released
- One more payable day
- About $1,000 retained
This is timing, not profit. Faster sales, collections or agreed supplier terms can shorten the cycle; a one-day estimate does not guarantee that cash will arrive.
The formula
Cash conversion cycle (days) = DIO + DSO − DPO
Cash per inventory or payable day = about annual COGS ÷ 365
Cash per receivables day = about annual net sales ÷ 365
- DIO
- Average days inventory sits before sale.
- DSO
- Average days to collect customer payment after a sale.
- DPO
- Average days before paying suppliers.
Worked example
- Inventory takes 60 days to sell, customers pay in 20 days, and suppliers are paid in 30 days.
- Cash conversion cycle is 60 + 20 − 30 = 50 days.
- At $365,000 annual COGS, one less inventory day or one more agreed payable day represents about $1,000 of cash timing.
- At $730,000 annual net sales, one less receivables day represents about $2,000. These are estimates, not profit.
When it applies
- Comparing how inventory, collections and supplier terms affect working-capital timing.
When it breaks down
- The one-day cash amounts assume annual flow is spread evenly; seasonality and payment terms can change the real effect.
Common mistakes
Calling it profit
The cycle describes cash timing, not margin or earnings.
Using mismatched periods
DIO, DSO and DPO need to refer to the same period.
Extending payables unilaterally
A longer DPO helps cash only when supplier terms allow it.
Questions
What is the cash conversion cycle formula?
Days inventory outstanding plus days sales outstanding minus days payables outstanding.
What does a negative cash cycle mean?
It means the measured collection and stock period is shorter than the supplier-payment period; it is possible in some models.
How does inventory affect the cycle?
Reducing days inventory outstanding shortens the cycle and can release cash tied up in goods.
How does faster collection affect cash?
Reducing days sales outstanding can bring customer cash in earlier; annual sales divided by 365 is a rough one-day scale.
Does a shorter cycle always mean more profit?
No. It can improve cash timing without changing gross profit.
Related
Published by Skuvelo. Results are estimates computed from the figures you enter, not a reading of your own sales or stock.
A calculator answers once. Skuvelo keeps answering.
This tool computes one number from what you type. Skuvelo computes it continuously, for every SKU, from your own sales and stock.