Chart · Cash Flow
Working Capital Days Reference
Convert hypothetical receivable, inventory and payable balances into day measures with explicit sales, cost and purchase denominators.
The example deliberately uses three different denominators. Receivables arise from credit sales, inventory is carried at cost, and trade payables arise from purchases on supplier terms. Each average balance is measured over the same 30-day period as its corresponding flow. Mixing a year of revenue with one month of purchases would destroy the comparison.
Days = average balance ÷ matching period flow × period days; cash cycle = DIO + DSO − DPO
| Measure | Average balance | 30-day period flow | Result |
|---|---|---|---|
| DSO | $20,000 receivables | $60,000 credit sales | 10 days |
| DIO | $30,000 inventory | $45,000 cost of goods sold | 20 days |
| DPO | $18,000 trade payables | $54,000 credit purchases | 10 days |
| Operating cycle | 20 inventory days + 10 collection days | Not applicable | 30 days |
| Cash conversion cycle | 20 + 10 − 10 days | Not applicable | 20 days |
How to read and reuse this example
For a quick estimate, an opening-and-closing average may be usable, but daily or weekly averages can better represent a seasonal business. If purchases data are unavailable and cost of goods sold is used as a payable-days proxy, disclose that substitution. A stock build can make purchases much larger than cost of goods sold, changing the inferred payment interval.
Boundaries and exceptions
These averages are not invoice due dates or a promise of customer collection. A zero sales, cost or purchase flow makes the associated day ratio undefined; do not invent a zero-day answer. The cash cycle is a timing measure and does not by itself calculate the dollar buffer required for a peak payment week.
Method reference: OpenStax: What Is Working Capital?. Checked October 22, 2026. Current assets, current liabilities and the cash conversion cycle; no liquidity ratio is prescribed.
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- Days Sales Outstanding: Use Credit Sales
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