Measure how fast your business converts operational investments into cash flows by analyzing Inventory Days (DIO), Receivables Days (DSO), and Payables Days (DPO).
The Working Capital Equation
The Cash Conversion Cycle (CCC) measures the number of days cash is tied up in raw materials, inventory, and unpaid client invoices before receiving payment:
DIO (Days Inventory Outstanding):(Avg Inventory / COGS) × 365 — Days to turn inventory into sales.
DSO (Days Sales Outstanding):(Avg Receivables / Revenue) × 365 — Days to collect cash from customers.
DPO (Days Payables Outstanding):(Avg Payables / COGS) × 365 — Days taken to pay suppliers.
A lower or negative CCC means your business funds its growth using supplier credit rather than expensive bank debt.
Formula
CCC (Days) = DIO + DSO − DPO Trapped Working Capital = Revenue × (CCC / 365) Annual Working Capital Financing Cost = Trapped Capital × 12% Interest
Frequently Asked Questions
Yes! Companies like Amazon, D-Mart, and Apple operate with negative CCC. They sell inventory to customers for cash in 5–15 days while paying suppliers on 60–90 day credit terms, giving them free working capital to expand.
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Speed up customer collections (shorter DSO) through early payment discounts, reduce dead stock (lower DIO) via JIT inventory, and negotiate longer vendor payment terms (higher DPO).