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Methodology

Cash Conversion Cycle Planner methodology

Measure how inventory, receivables and supplier terms tie up operating cash, then test a concrete working-capital improvement.
Duc Nguyen X.By Duc Nguyen X.· Founder, Margin101Last reviewed: View update historyMethodology

Educational only: Business decision support, not accounting, tax or legal advice.

Privacy: Calculations run locally; Margin101 does not receive your commercial inputs.

Update policy: Reviewed when formulas or official dependencies change.

Scope: Market-neutral small-business planning using your own assumptions.

1. Formulas and units

Cash Conversion Days
cashConversionDays = inventory days + receivable days − payable days

Where

inventoryDays
Inventory days (calendar days/current inventory holding cycle)Source: Business record
receivableDays
Receivable days (calendar days/current customer collection cycle)Source: Business record
payableDays
Payable days (calendar days/current supplier payment cycle)Source: Business record
cashConversionDays
Cash Conversion Days (days)Source: Calculated output
Estimated Cash Tied In Cycle
estimatedCashTiedInCycle = inventory cash + receivables cash − payables cash

Where

estimatedCashTiedInCycle
Estimated Cash Tied In Cycle (currency units, ex tax)Source: Calculated output
Proposed Cash Conversion Days
proposedCashConversionDays = proposed inventory days + proposed receivable days − proposed payable days

Where

inventoryDays
Inventory days (calendar days/current inventory holding cycle)Source: Business record
receivableDays
Receivable days (calendar days/current customer collection cycle)Source: Business record
payableDays
Payable days (calendar days/current supplier payment cycle)Source: Business record
proposedInventoryDays
Proposed inventory days (calendar days/proposed inventory holding cycle)Source: User decision
proposedReceivableDays
Proposed receivable days (calendar days/proposed customer collection cycle)Source: User decision
proposedPayableDays
Proposed payable days (calendar days/proposed supplier payment cycle)Source: User decision
cashConversionDays
Cash Conversion Days (days)Source: Calculated output
proposedCashConversionDays
Proposed Cash Conversion Days (days)Source: Calculated output
Cash Released By Improvement
cashReleasedByImprovement = current cash tied in cycle − proposed cash tied in cycle

Where

cashReleasedByImprovement
Cash Released By Improvement (currency units, ex tax)Source: Calculated output

Money inputs and outputs use the currency selected in the scenario without changing the canonical methodology. Rates, margins, utilisation and buffers are entered as percentages and converted to decimal values for calculation.

2. Worked example

Input assumptions

The worked rows below come directly from the registered engine and visible default fixture.

Calculation and outputs

Example

The worked rows below come directly from the registered engine and visible default fixture.

Cash Conversion Days
50
Estimated Cash Tied In Cycle
110,958.9 currency units
Proposed Cash Conversion Days
33
Cash Released By Improvement
33,698.63 currency units

The exact engine-derived outputs are shown in the labelled rows below.

Interpretation

Use cycle days to locate where operating cash is absorbed; the estimated release is a scenario, not a forecast.

3. Validation and boundary checks

  • All inputs must be finite and within the visible boundaries.
  • Cash, debt and timing values use one consistent planning period.
  • Payment counts and frequencies must be positive whole numbers.

4. Assumptions and source classification

  • All balances, rates, timing and coverage thresholds are user-supplied records or explicit assumptions.
  • No lender covenant, market rate, policy threshold or future cash flow is inferred.

This planner has no current policy-data dependency. Its commercial assumptions are user supplied. Registered family-level regression suites exercise the shared business-logic engine and worked-result reconciliation.

5. Limitations

  • The model excludes lender fees, taxes, covenant definitions and lender-specific credit assessments.
  • It does not replace accounting, tax, legal or financial advice.

This is educational decision support, not tax, accounting, legal or financial advice. Check the treatment of your actual transactions under the rules that apply to your business and seek qualified advice where appropriate.

6. Update and evidence policy

Registered family-level suites test formula invariants and example reconciliation; the release ledger records that coverage without claiming a separate oracle for every line of public copy. There is no official threshold or benchmark to refresh for this planner. Commercial inputs remain user-supplied because they vary by business and contract.

Change history

  1. : Initial public release of the Cash Conversion Cycle planner and methodology.

Related reading

Guides to interpret the decision and its assumptions.

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