A trading business has to buy goods and services from suppliers, convert them into finished goods, and sell them to customers. Unfortunately there is usually a timing difference between the cash payment to the suppliers, and the receipt of cash from the customers.
This timing difference is referred to as the cash conversion cycle and is influenced by the amount of credit received from suppliers, the time the goods are held in inventory and work in process before the finished goods are produced, and the amount of credit given to customers. The cycle is more fully discussed in our post on the cash conversion cycle.
Cash Conversion Cycle Formula
The cash conversion cycle formula is stated as follows:
The aim of this cash conversion cycle calculator is to use this formula to calculate the number of days between the payment to the supplier and the receipt of cash from the customer.
In addition, the calculator calculates the amount of cash required to finance working capital based on a given level of revenue and gross margin percentage. Finally to allow quick calculations to be made, the calculator shows the equivalent number of days revenue needed to finance the same working capital.
Using the Cash Conversion Cycle Calculator
The cash conversion cycle calculator which is available for download below is used as follows:
Enter Inventory Days
Enter the number of days the inventory and work in process is held by the business. Our post on how to determine inventory days, and our inventory days calculator are available to help you determine the number of days to enter.
Enter Accounts Receivable Days
Enter the number of days credit given to on-account customers. For example if your normal trade terms are 60 days then enter 60. For further information see our post on How to determine days sales outstanding and make use our days sales outstanding calculator.
Enter Accounts Payable Days
Enter the number of days credit given to the business by suppliers. For example if your normal trade terms with suppliers are 30 days then enter 30. For further information see our post on How to determine days payable outstanding, and use our days payable outstanding calculator.
The calculator works out the cash conversion cycle for the business.
Enter Revenue and Gross Margin %
In order to calculate the cash required to finance working capital, enter the annual revenue and the gross margin percentage for the business.
The calculator works out the estimated inventory, accounts receivable, and accounts payable levels, and uses these to calculate the cash required to finance working capital based on the cash conversion cycle of the business.
Finally, the cash conversion cycle calculator calculates the equivalent number of days revenue. The use of revenue days to quickly calculate the amount of cash required to fund working capital is more fully discussed in our cash conversion cycle post.
Cash Conversion Cycle Calculator Download
The cash conversion cycle calculator is available for download in Excel format by following the link below.
Users use this cash conversion cycle calculator at their own risk. We make no warranty or representation as to its accuracy and we are covered by the terms of our legal disclaimer, which you are deemed to have read. This is an example of a CCC calculator template that you might use when preparing financial projections in Excel. It is purely illustrative of a small business accounting calculator. This is not intended to reflect general standards or targets for any particular company or sector. If you do spot a mistake in the financial calculator, please let us know and we will try to fix it.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.