This calculator provides the user with the ability to calculate the cash conversion cycle for a company. The calculator inputs include revenues, cost of goods sold (COGS), inventories, accounts receivable, and accounts payable. The cash conversion cycle is equal to the Days Inventory Outstanding (DIO), plus the Days Sales Outstanding (DSO), minus the Days Payable Outstanding (DPO).
The variables used in our online calculator are defined in detail below, including how to interpret the results.
These are the total annual revenues of the company, as found on the income statement.
Also referred to as the cost of sales, the cost of goods sold (COGS) is a measure of the direct cost to manufacture a product or provide a service. The cost of goods sold can be found on the income statement, and includes direct labor as well as raw materials.
The beginning and ending inventory is used to calculate the average inventory for the fiscal year. Inventory is a current asset, which is found on the balance sheet.
The beginning and ending accounts receivable is used to calculate the average accounts receivable for the fiscal year. Accounts receivable are claims the company has against its customers for goods or services received, but not yet paid for by the customer. Accounts receivable is a current asset, which is found on the balance sheet.
The beginning and ending accounts payable is used to calculate the average accounts payable for the fiscal year. Accounts payable is money owed creditors for goods or services received, but not yet paid for by the company. Accounts payable is a current liability, which is found on the balance sheet.
The Days Inventory Outstanding is calculated as the Average Inventory divided by the Cost of Goods Sold per day. DIO is a measure of the company's ability to turn its inventory into revenue.
The Days Sales Outstanding is calculated as the Average Accounts Receivable divided by the Revenues per day. DSO is a measure of the company's ability to collect money from customers after a sale.
The Days Payable Outstanding is calculated as the Average Accounts Payable divided by the Cost of Goods Sold per day. DPO is a measure of the company's ability to delay payment to creditors for goods and services received.
The cash conversion cycle, or CCC, is calculated as the sum of the DIO plus the DSO, minus the DPO. This is the number of days between the payment for raw materials used to manufacture a product, and the collection of cash from customers that consumed the product. The shorter the cash conversion cycle, the more efficient a company is at using its cash on hand.
Cash Conversion Cycle Calculator
Disclaimer: These online calculators are made available and meant to be used as a screening tool for the investor. The accuracy of these calculations is not guaranteed nor is its applicability to your individual circumstances. You should always obtain personal advice from qualified professionals.