1. What is Cash Cycle?

The Cash Cycle (also called Cash Conversion Cycle) measures how long it takes for a company to convert its investments in inventory and other resources into cash flows from sales. It indicates the time between paying for inventory and receiving cash from customers.

2. How Does the Calculator Work?

The calculator uses the Cash Cycle formula:

Where:

• \( \text{Inventory Days} \) — Days inventory sits before being sold
• \( \text{Receivable Days} \) — Days to collect payment from customers
• \( \text{Payable Days} \) — Days to pay suppliers

Explanation: The formula shows how many days cash is tied up in working capital. A shorter cycle means better liquidity.

3. Importance of Cash Cycle

Details: The cash cycle is crucial for understanding a company's operational efficiency and liquidity. A shorter cycle indicates better working capital management.

4. Using the Calculator

Tips: Enter inventory days (how long inventory is held), receivable days (how long customers take to pay), and payable days (how long you take to pay suppliers). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good cash cycle?
A: Generally, shorter is better. Negative cycles (where you receive payment before paying suppliers) are ideal but rare.

Q2: How does cash cycle vary by industry?
A: Retailers typically have short cycles, while manufacturers often have longer ones due to inventory requirements.

Q3: Can cash cycle be negative?
A: Yes, if payable days exceed the sum of inventory and receivable days. This means suppliers finance your operations.

Q4: How to improve cash cycle?
A: Reduce inventory days (JIT inventory), decrease receivable days (faster collections), or increase payable days (without damaging supplier relationships).

Q5: What's the difference between cash cycle and operating cycle?
A: Operating cycle = Inventory Days + Receivable Days. Cash cycle is operating cycle minus Payable Days.