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Cash Conversion Cycle Calculator
Turns receivables, inventory, and payables into days, then into the cash conversion cycle — how long a dollar stays tied up in working capital before it comes back.
How this calculation works
- DSO is receivables divided by revenue, multiplied by days in the period: how long it takes to collect a sale.
- DIO is inventory divided by cost of goods sold, multiplied by days in the period: how long stock sits before it is sold.
- DPO is payables divided by cost of goods sold, multiplied by days in the period: how long you take to pay suppliers.
- The cash conversion cycle is DSO plus DIO less DPO. It is the number of days between paying for inventory and collecting the cash from selling it.
Conventions and edge cases
- DIO and DPO run off cost of goods sold, not revenue. Using revenue for either inflates turnover and understates the days, which is the single most common error in these ratios.
- Ending balances and average balances give different answers. Averages smooth seasonal swings and are the better choice when the balance sheet date is unrepresentative; ending balances are what most published comparisons use. Be consistent, and say which you used.
- A negative cash conversion cycle is not an error. Businesses that collect before they pay — subscriptions, some retail — genuinely run on supplier float.
Frequently asked questions
- Should DPO use COGS or revenue?
- Cost of goods sold. Payables arise from purchasing, not from selling, so measuring them against revenue mixes two unrelated bases and understates DPO whenever gross margin is meaningful. The same applies to DIO.
- Can the cash conversion cycle be negative?
- Yes, and it is a strong position. A negative cycle means you collect from customers before paying suppliers, so growth funds itself out of working capital rather than consuming cash. Subscription businesses and some large retailers run this way.
- Should I use ending or average balances?
- Averages are more representative when balances swing seasonally, since the ratio compares a point-in-time balance sheet figure to a full period of P&L activity. Ending balances are more common in published benchmarks. Either is defensible; mixing them across periods is not.
- How many days should I use for a quarter?
- Use the actual days in the period — 90, 91, or 92 for a quarter, 365 or 366 for a year. Using 90 and 360 uniformly is a common simplification that introduces a small, consistent bias, which matters when you are comparing periods to each other.