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    OPERATIONS & LIQUIDITY

    How much cash is tied up in operations?

    Translate stock, collection and supplier-payment days into trade working capital. Compare a target collection period with the current case and keep cash amounts separate from cycle days.

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    Your planning assumptions

    Start with the example, then change the inputs.

    Your planning assumptions
    Use one currency for every amount. Enter 5,000 for five thousand; changing the currency label does not convert your inputs.
    Sales made on credit, using the same customer population as receivable days.
    Annual cost of goods sold for the stock covered by inventory days, not the value of sales.
    Purchases on supplier credit; use the same scope as payable days.
    Nonnegative days of inventory at cost, up to 730.
    Average time between a credit sale and customer payment, in days.
    Average time between a supplier credit purchase and your payment, in days.
    Only collection timing changes in this comparison.
    One consistent annual day-count convention.

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    Methodology

    Three balances use three different operating drivers.

    Receivables are daily credit sales multiplied by collection days. Inventory is daily cost of sales multiplied by stock days. Payables are daily credit purchases multiplied by supplier-payment days. Their net balance estimates operating trade capital, excluding cash and financing debt.

    The cash conversion cycle adds inventory and receivable days and subtracts payable days. It measures timing, while net working capital measures currency. Changing collection days releases or absorbs cash through receivables only; all other inputs stay constant.

    Receivables = annual credit sales ÷ year days × receivable days
    Inventory = annual cost of sales ÷ year days × inventory days
    Payables = annual credit purchases ÷ year days × payable days
    Operating NWC = receivables + inventory − payables
    Cash cycle = inventory days + receivable days − payable days

    Illustrative worked example

    With a 365-day year, daily credit sales are $1,000, daily cost of sales $600 and daily credit purchases $500. At 30 collection days, 40 stock days and 45 payment days, balances are $30,000, $24,000 and $22,500. Net working capital is $31,500 and the cycle is 25 days. Collecting in 20 days releases $10,000.

    Worked example values
    MeasureIllustrative result
    Trade receivables$30,000
    Inventory at cost$24,000
    Trade payables$22,500
    Operating net working capital$31,500

    Assumptions and limits

    • This is a steady-flow approximation using average balances. Seasonality, rapid growth and overdue invoices can make it unsuitable.
    • Negative NWC or cycle days can be valid; neither guarantees spare cash. Supplier terms, concentration and overdue obligations still matter.
    • Do not multiply cycle days by daily sales to estimate NWC: inventory and payables have different denominators.
    • Cash sales, tax balances, accruals, advances, debt and minimum cash are outside this operating trade measure. It is not the accounting current-assets-minus-current-liabilities total.

    Can a shorter cycle increase cash but leave profit unchanged?

    Yes. Collecting the same invoice earlier can reduce receivables without changing the sale or its margin. The modeled cash release is a balance change, not new revenue or profit, and collection changes can have commercial costs that are excluded here.

    Primary methodology references

    ACCA: operating performance and working capital ratios. Definitions and distinct denominators for receivables, inventory and payables days. The calculator rearranges these ratios to estimate balances.

    Worked examples explain the calculation, not expected business results.