1. What is the Working Capital Cycle?

The Working Capital Cycle (also known as Cash Conversion Cycle) measures how long it takes for a company to convert its investments in inventory and other resources into cash flows from sales. It represents the time between paying for raw materials and collecting cash from customers.

2. How Does the Calculator Work?

The calculator uses the Cash Conversion Cycle formula:

Where:

• \( CCC \) — Cash Conversion Cycle (days)
• \( DIO \) — Days Inventory Outstanding (days)
• \( DSO \) — Days Sales Outstanding (days)
• \( DPO \) — Days Payable Outstanding (days)

Explanation: The formula calculates the net time between cash outflows for inventory and cash inflows from sales, adjusted by the time taken to pay suppliers.

3. Importance of CCC Calculation

Details: A shorter CCC indicates better working capital management and faster cash conversion. It helps businesses optimize inventory levels, accounts receivable, and accounts payable to improve liquidity and operational efficiency.

4. Using the Calculator

Tips: Enter DIO, DSO, and DPO values in days. All values must be non-negative. DIO represents average days to sell inventory, DSO represents average days to collect receivables, and DPO represents average days to pay suppliers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good CCC value?
A: Generally, a lower CCC is better. Negative CCC is excellent as it means the company gets paid before paying suppliers. Industry benchmarks vary significantly.

Q2: How do I calculate DIO, DSO, and DPO?
A: DIO = (Average Inventory / COGS) × 365, DSO = (Average Accounts Receivable / Revenue) × 365, DPO = (Average Accounts Payable / COGS) × 365

Q3: Can CCC be negative?
A: Yes, negative CCC occurs when DPO > (DIO + DSO), meaning the company pays suppliers after collecting from customers, creating favorable cash flow.

Q4: Why is CCC important for businesses?
A: It indicates working capital efficiency, impacts cash flow requirements, and helps identify opportunities to optimize inventory, credit, and payment terms.

Q5: How often should CCC be calculated?
A: Typically calculated quarterly or annually as part of financial analysis. More frequent monitoring helps identify trends and operational issues.