The cash conversion cycle estimates how long operating funds are tied up between paying for inputs and collecting sales. It combines inventory days and receivable days, then subtracts payable days, using consistent definitions and periods.
For a basic calculation, inventory days use average inventory divided by cost of goods sold, multiplied by days in the period. Receivable days commonly use average trade receivables and credit sales. Payable days use average trade payables and credit purchases; when a proxy is used, state it clearly.
For example, 50 inventory days plus 40 receivable days minus 30 payable days gives a 60-day cycle. This is a planning indicator, not a forecast of every receipt. Seasonality, advance payments and a changing product mix can make averages less representative.
Investigate the component creating the largest practical funding burden. Improve stock and collection processes without assuming that extending supplier payments has no service consequence. Pair the cycle with an actual cash forecast before making financing decisions.
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This page uses open and institutional references as a frame; the final decision still belongs to the company record, threshold and owner.
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