Operating cycle vs cash conversion cycle
The operating cycle is DSO plus DIO. The cash conversion cycle subtracts DPO from that. 45 plus 60 is 105 days. Minus 30 is 75 days. DSO 30 plus DIO 20 is a 50 day operating cycle under a CCC of minus 50.
| Operating cycle | Cash conversion cycle | |
|---|---|---|
| Formula | DSO + DIO. | DSO + DIO - DPO. |
| First sheet | 45 + 60 = 105 days. | 105 - 30 = 75 days. |
| Negative CCC | 30 + 20 = 50 days, still positive. | 50 - 100 = minus 50 days. Payables more than cover the loop. |
| Equal clocks of 40 | 40 + 40 = 80 days. | 80 - 40 = 40 days. Matching clocks does not zero either figure. |
| What it ignores | How long the firm takes to pay suppliers. | Nothing in the three clocks. It still ignores dollars and growth. |
| When you would pick it | The wait inside customers and stock. | The residual wait after supplier credit. |
On this page
Payables are the whole gap
On the first sheet the operating cycle is 105 days and CCC is 75 days. The 30 days of DPO is the entire difference. How the operating cycle works owns the 105. How the cash conversion cycle works owns the 75. The cash conversion cycle calculator prints both.
DSO against DIO is which clock is doing the work inside the 105.
Negative CCC does not make the loop negative
DSO 30, DIO 20, DPO 100. Operating cycle 50 days. CCC minus 50 days. Customers and stock still take 50 days. Suppliers more than fund it. This is educational material, not financial advice.
Worked examples
105 against 75
DSO 45, DIO 60, DPO 30. Operating cycle and CCC?
- Operating cycle: 105 days.
- CCC: 75 days.
The operating cycle is 105 days. CCC is 75 days.
50 against minus 50
DSO 30, DIO 20, DPO 100. Operating cycle and CCC?
- Operating cycle: 50 days.
- CCC: minus 50 days.
The operating cycle is 50 days. CCC is minus 50 days.
80 against 40
DSO 40, DIO 40, DPO 40. Operating cycle and CCC?
- Operating cycle: 80 days.
- CCC: 40 days.
The operating cycle is 80 days. CCC is 40 days.
Common questions
Can the operating cycle be negative?
Not from DSO and DIO as days outstanding. Negative CCC comes from DPO.
Is 105 days a target?
It is 45 plus 60 on the teaching sheet. Compare inside a sector.
Which one is working capital?
Both are working capital written in days. CCC is the residual after payables. This is educational material, not financial advice.
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.