Cash conversion cycle calculator
The cash conversion cycle is DSO plus DIO minus DPO: how long cash sits in customers and stock, minus how long the firm takes to pay suppliers. 45 plus 60 minus 30 is 75 days.
Cash conversion cycle
75 days
Inventory and receivables hold cash for 105 days. Payables give 30 days of that back.
- Operating cycle (DSO + DIO)
- 105 days
- Days payable outstanding
- 30 days
- Cash conversion cycle
- 75 days
How long customers take to pay. Receivables over daily sales.
How long stock sits. Inventory over daily cost of goods.
How long the firm takes to pay suppliers. A larger figure shortens the cycle.
The formula
DSO is days sales outstanding, DIO days inventory outstanding, and DPO days payable outstanding. The operating cycle is DSO plus DIO. CCC subtracts the payable days from that.
Three clocks, one residual
DSO asks how long customers take to pay. DIO asks how long stock sits. DPO asks how long the firm takes to pay its suppliers. Add the first two and you have the operating cycle: cash tied up in the working-capital loop. Subtract DPO and you have how much of that loop the firm still has to fund itself.
45 days of receivables plus 60 days of inventory is a 105 day operating cycle. Minus 30 days of payables leaves a 75 day cash conversion cycle. For 75 days, on average, the operations have cash stuck in the cycle.
This is a working capital identity written in days rather than in dollars. An increase in the cycle consumes cash. A fall in it releases cash, which is why a change in net working capital is subtracted when profit is turned into free cash flow.
Negative is a source of cash
DSO 30, DIO 20, DPO 100. The operating cycle is 50 days. Payables are 100 days. CCC is minus 50 days.
Suppliers are paid 50 days after the cash from the sale is already in. Customers and inventory are not funding a gap. The payables are. Supermarkets and some subscription firms run this on purpose: collect before paying. A negative cycle is not a bug in the formula. It is a business that has shifted the funding of its cycle onto its suppliers.
It is also not free. Stretch DPO far enough and suppliers raise prices, cut service, or walk. The formula will still print a prettier number.
A balanced 40
DSO 40, DIO 40, DPO 40. The operating cycle is 80 days. CCC is 40 days. Each clock is the same length, and the firm still funds 40 days of the loop.
Equal clocks are not a target. A manufacturer with long production holds more inventory days than a retailer turning pallets overnight. Compare CCC inside a sector, the way P/E is compared inside a sector, or the comparison is noise.
What this page is not doing
It does not compute DSO, DIO or DPO from a balance sheet. Those three are inputs. DSO is receivables over daily sales, DIO is inventory over daily cost of goods, DPO is payables over daily cost of goods. Type the days your sheet already has.
It is also not a cash forecast. A 75 day cycle on a growing firm consumes more cash next year than this year, because the same days sit on a larger sales number. The free cash flow calculator is the page that takes the change in working capital off NOPAT. This is educational material, not financial advice.
Worked examples
45 plus 60 minus 30
Days sales outstanding 45, days inventory outstanding 60, days payable outstanding 30. What is the cash conversion cycle?
- Operating cycle: days.
- Cash conversion cycle: days.
The operating cycle is 105 days. The cash conversion cycle is 75 days.
A negative cycle
DSO 30, DIO 20, DPO 100. What is CCC?
- Operating cycle: days.
- CCC: days.
The operating cycle is 50 days. CCC is minus 50 days. Suppliers fund the cycle.
Equal clocks
DSO 40, DIO 40, DPO 40. What is CCC?
- Operating cycle: days.
- CCC: days.
The operating cycle is 80 days. CCC is 40 days.
The mistake that costs the most
Treating a negative CCC as an error, or comparing cycles across sectors as if 75 days meant the same thing in a shipyard and a grocer.
Minus 50 days on the second sheet is the formula working: payables outlast the operating cycle, so cash arrives before it leaves. Calling that a bug leads you to shrink DPO and give the funding advantage away.
The other error is reading CCC as a cash balance. It is a duration. A firm growing fast can print a shorter cycle and still consume cash, because the same days now sit on a larger book of sales.
Common questions
How do I get DSO from a balance sheet?
Receivables divided by sales per day, using a year of sales over 365. DIO is inventory over cost of goods per day. DPO is payables over cost of goods per day. This calculator takes the days, not the ledger lines.
Is a shorter cycle always better?
It releases cash, all else equal. Cutting DSO by refusing customers, or cutting DIO into stockouts, can cost more than the cash it frees. The number is a diagnostic, not a score.
Why does free cash flow care about this?
A longer cycle is an increase in working capital, which is cash leaving. FCF subtracts that increase from NOPAT. This page is the days version of that same loop.
Keep reading
This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.