The working capital cycle time formula
The working capital cycle time formula, also known as the cash conversion cycles, is a measure of how long it takes for a company to convert its investments in inventory and other resources into cash. The formula is:
Working capital cycle times = Inventory days + Receivables days – Payables days
Inventory days refer to the number of days it takes for a company to sell its inventory. Receivables days refer to the number of days it takes for a company to collect payment from its customers. Payables days refer to the number of days it takes for a company to pay its suppliers for goods and services.
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This formula measures the amount of time it takes for a company to complete its working capital cycles, which is the period from when a company first invests in inventory to when it receives cash from the sale of that inventory. The shorter the working capitals cycles time, the more efficient a company is at managing its working capital and converting its investments into cash.
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