Free tool
Working Capital & Cash Conversion Cycle
How much cash your operating cycle ties up, and for how many days — the number behind most ‘profitable but broke’ businesses.
Balance sheet
Operating cycle (annual figures)
Result
- Working capital
- ₹0
- Current ratio
- 0.00
- DSO — days to collect
- 0
- DIO — days of inventory
- 0
- DPO — days to pay
- 0
- Cash conversion cycle
- 0 days
Why profitable businesses run out of cash
Growth consumes working capital. Every new order means stock bought and wages paid before the customer settles. If your cash conversion cycle is 90 days, growing 40% doesn’t just need 40% more effort — it needs 40% more cash tied up for three months before any of it comes back.
The three components
- DIO — how long stock sits before it’s sold. (Inventory ÷ COGS) × 365
- DSO — how long customers take to pay. (Receivables ÷ Revenue) × 365
- DPO — how long you take to pay suppliers. (Payables ÷ COGS) × 365
CCC = DIO + DSO − DPO. The lower the number, the less of your own cash is funding the operating cycle.
What a day is worth
On ₹6 crore of annual revenue, one day of DSO is roughly ₹1.6 lakh of cash. Cutting collections from 55 days to 40 releases about ₹25 lakh — usually faster and cheaper than negotiating an overdraft for the same amount, and without the interest.
Debtor ageing and a documented collections discipline are part of our finance operations service, and the cycle is tracked monthly in the MIS pack.
Working capital — common questions
How is working capital calculated?
Working capital = current assets − current liabilities. It measures the short-term resources available to run the business. A positive figure means current assets cover what falls due within the year; a negative one usually signals strain, though some business models run negative working capital by design.
What is the cash conversion cycle?
The cash conversion cycle (CCC) is DIO + DSO − DPO: days inventory outstanding, plus days sales outstanding, minus days payable outstanding. It tells you how many days your cash is tied up between paying suppliers and collecting from customers.
What is a good current ratio?
Between roughly 1.5 and 3 is comfortable for most businesses. Below 1 means current liabilities exceed current assets. Well above 3 isn’t automatically good — it often means cash, stock or receivables are sitting idle rather than working.
How can I reduce my cash conversion cycle?
Three levers: collect faster (tighter terms, disciplined follow-up, early-payment incentives), hold less stock (better forecasting, faster turns), and pay suppliers on properly negotiated terms rather than early out of habit. Of the three, collections usually moves fastest.
Can the cash conversion cycle be negative?
Yes, and it’s an excellent position. It means you collect from customers before you pay suppliers, so growth funds itself instead of consuming cash. Retail and subscription models often achieve it.
Serving businesses across India
Find the cash already inside your business.
Most mid-sized businesses are financing 20 to 40 days of cycle they don’t need to. It’s usually the cheapest capital available to you.
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