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For Chartered AccountantsRates reviewed September 2026

Working Capital Cycle Calculator: Operating and Cash Conversion Cycle

The working capital cycle is the number of days between paying for stock and collecting the cash from selling it. It is the figure a bank's credit officer converts a CMA pack into before reading anything else, because the holding periods in Form IV of that pack are exactly the inventory days, receivable days and payable days that make up the cycle. A longer cycle means more money is locked up in the business at any moment, and it is the reason two businesses with the same turnover can need very different limits.

The arithmetic is definitional. Inventory days is average inventory over cost of goods sold, times 365. Receivable days is average receivables over revenue, times 365. Payable days is average payables over cost of goods sold, times 365. The operating cycle is inventory days plus receivable days, and the cash conversion cycle is the operating cycle less payable days, because supplier credit funds part of the wait. The ICAI Financial Management study material sets out the same definitions, and the Reserve Bank's turnover method, which sizes working capital at 25 percent of projected turnover, is a rough proxy for a cycle of about 90 days.

Two conventions matter when comparing the result with a bank's own working. Inventory and payables are measured against cost of goods sold, not sales, because both are carried at cost. Receivables are measured against revenue, because they are carried at selling price. Using sales for all three, which some templates do, shortens the inventory and payable days and makes the cycle look better than it is. This page uses the cost-based convention and says so in the output.

Aalekh builds CMA data from a client's books, and the holding periods it projects are the ones this page computes, so the two should agree. Run the cycle on the last audited year first, then on the projections, and be ready to explain any step change in a note to the bank.

Working Capital Cycle Calculator

Net sales for the year, the base for receivable days.

₹

Materials consumed plus direct manufacturing cost, the base for inventory and payable days.

₹

The mean of the opening and closing stock, or the closing stock if that is all you have.

₹
₹

Trade creditors only, not statutory dues or bank borrowing.

₹

Cash conversion cycle

60 days

operating cycle of 90 days less 30 payable days

Inventory days₹1,00,00,000 ÷ ₹7,30,00,000 × 365
50 days
Receivable days₹1,20,00,000 ÷ ₹10,95,00,000 × 365
40 days
Payable days₹60,00,000 ÷ ₹7,30,00,000 × 365
30 days
Operating cycleinventory days plus receivable days, from buying stock to collecting cash
90 days
Cash conversion cycleoperating cycle less the credit the supplier gives
60 days
Cost of goods sold per daythe working capital tied up by each day of the cycle
₹2,00,000
Working capital funded through the cycle60 days × ₹2,00,000
₹1,20,00,000
Cycles completed in a year365 days over the cash conversion cycle
6.08
Inventory plus receivables less payablesthe balance sheet view, which is higher because receivables carry the margin
₹1,60,00,000
  • Inventory and payables are measured against cost of goods sold and receivables against revenue. A template that uses sales for all three will show shorter inventory and payable days.
  • The holding periods in Form IV of a CMA pack are these same three figures, so the cycle here and the one implied by the projections should agree.

The formula

Inventory days = Average inventory ÷ COGS × 365; Receivable days = Average receivables ÷ Revenue × 365; Payable days = Average payables ÷ COGS × 365; Operating cycle = Inventory days + Receivable days; Cash conversion cycle = Operating cycle - Payable days

Average inventory, receivables and payables
The mean of the opening and closing balances for the year, or the closing balance if only one is available, so the cycle reflects the year rather than a single date.
Cost of goods sold (COGS)
Materials consumed plus direct manufacturing cost, which is what inventory and payables are carried at.
Operating cycle
The days between buying stock and collecting from the customer, before allowing for the credit the supplier gives.
Cash conversion cycle
The days the business itself has to fund, being the operating cycle less the payable days the supplier carries.
Working capital tied up per day
Cost of goods sold divided by 365, so the cash conversion cycle times this figure is the working capital the cycle absorbs.

Payable days can exceed the operating cycle, in which case the cash conversion cycle is negative and suppliers are funding the business rather than the other way round. That is common in retail and in trading with long supplier credit, and it is a legitimate result rather than an error.

How to calculate it

  1. 1

    Take the balances as averages, not year-end snapshots

    Average the opening and closing inventory, receivables and payables for the year. A year-end balance can be unusually high or low because of a large order or a payment made the day before the balance sheet date, and a cycle built on it will not survive the credit officer's comparison with the monthly stock statements.

  2. 2

    Compute the three holding periods

    Divide average inventory by cost of goods sold and multiply by 365 for inventory days. Divide average receivables by revenue and multiply by 365 for receivable days. Divide average payables by cost of goods sold and multiply by 365 for payable days. Keep the denominators straight: inventory and payables against cost, receivables against sales.

  3. 3

    Add the operating cycle and net off the supplier credit

    Inventory days plus receivable days is the operating cycle, the time from buying stock to collecting cash. Subtract payable days to get the cash conversion cycle, which is the part of that wait the business has to fund from its own money or a bank limit. This is the number a working capital sanction is really sized on.

  4. 4

    Translate the cycle into rupees

    Divide cost of goods sold by 365 to get the cost the business incurs each day, then multiply by the cash conversion cycle. The result is the working capital the cycle ties up, and it is the figure to compare with the limit being asked for. A limit far above it will be questioned, and a limit far below it means the business is running on statutory dues or overdue creditors.

  5. 5

    Compare with the CMA holding periods and the sector

    The holding periods in Form IV of the CMA pack are the same three numbers, so the cycle computed here and the one implied by the projections should match. Compare both with the last three audited years and with the sector, because a jump of thirty days in receivables with flat sales is the single most common trigger for a question about revenue quality.

Which denominator each holding period uses

Which denominator each holding period uses
Holding periodNumeratorDenominatorWhy
Inventory daysAverage inventoryCost of goods soldStock is carried at cost, so cost is the rate at which it is consumed
Receivable daysAverage receivablesRevenueDebtors are carried at selling price, so sales is the rate at which they arise
Payable daysAverage payablesCost of goods soldCreditors arise from purchases, which sit in cost of goods sold
Cash conversion cycleOperating cycle less payable daysNot applicableThe days the business funds after netting off supplier credit

Worked example

Annual revenue
₹10,95,00,000
Cost of goods sold
₹7,30,00,000
Average inventory
₹1,00,00,000
Average receivables
₹1,20,00,000
Average payables
₹60,00,000
  • Inventory days = ₹1,00,00,000 ÷ ₹7,30,00,000 × 365 = 50 days
  • Receivable days = ₹1,20,00,000 ÷ ₹10,95,00,000 × 365 = 40 days
  • Payable days = ₹60,00,000 ÷ ₹7,30,00,000 × 365 = 30 days
  • Operating cycle = 50 + 40 = 90 days
  • Cash conversion cycle = 90 - 30 = 60 days
  • Cost of goods sold per day = ₹7,30,00,000 ÷ 365 = ₹2,00,000, so the cycle ties up 60 × ₹2,00,000 = ₹1,20,00,000

An operating cycle of 90 days and a cash conversion cycle of 60 days, tying up ₹1,20,00,000 of working capital at ₹2,00,000 per day

Frequently asked questions

The operating cycle is the number of days from buying stock to collecting cash from the customer, so it is inventory days plus receivable days. The cash conversion cycle subtracts the days of credit the supplier gives, because during that time the supplier rather than the business is funding the stock. The cash conversion cycle is therefore the shorter of the two and is the figure a working capital limit is really sized on.
On cost of goods sold. Inventory is carried at cost, so dividing it by sales, which includes the margin, understates the days the stock is held. Payables are measured the same way for the same reason. Receivables are the exception and are measured against revenue, because a debtor is recorded at selling price. Some bank templates use sales throughout for simplicity, so check which convention the credit officer is applying before comparing figures.
Divide cost of goods sold by 365 to get the cost the business incurs each day, then multiply by the cash conversion cycle in days. On a cost of goods sold of ₹7,30,00,000 that is ₹2,00,000 a day, and a 60 day cycle ties up ₹1,20,00,000. That is the amount to compare with the fund-based limit being sought, and it will differ from inventory plus receivables less payables on the balance sheet because receivables carry the margin.
It means payable days exceed the operating cycle, so the supplier's credit outlasts the time the business takes to sell the stock and collect. The business is being funded by its suppliers and has no working capital gap of its own. That is normal in retail and in some trading businesses, but a bank will look at whether the supplier credit is contractual or is simply overdue, because the second kind disappears the moment the supplier tightens terms.
Form IV of the CMA pack lists projected inventory, receivables and payables as months or days of consumption, sales and purchases, which are the three holding periods on this page. Those balances feed the working capital gap in Form V, from which MPBF is computed. A cycle that lengthens in the projections without an explanation is the first thing a credit officer will challenge, so compute it on the audited years and the projections and reconcile the two.
The turnover method in the Master Circular on Management of Advances assesses working capital at 25 percent of projected annual turnover, of which the bank funds 20 percent and the borrower brings 5 percent. Twenty-five percent of a year's turnover is about 90 days of sales, so the method assumes a cycle of roughly three months for every borrower. That is a simplification for small limits, and a business with a longer cycle will need the detailed assessment this page supports.
Either is acceptable provided the same base is used throughout, and 365 is the more common choice in Indian bank templates and in the Schedule III ratio disclosures. Some study material and some lenders use 360 for simplicity, which shortens every holding period by about 1.4 percent. This page uses 365. The difference only matters when comparing a figure computed here with one from a document that used 360, so check the base before reading a gap between them as a real change.

Sources

Rates and rules on this page come from the following. This is a working aid, not professional advice: confirm anything material with your Chartered Accountant before you act on it.

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