This cash conversion cycle calculator measures working capital for businesses in Saudi Arabia two ways. In days: how long your cash stays locked in stock and customer balances between paying suppliers and getting paid. In riyals: net working capital and the current ratio. Enter figures from your income statement and balance sheet, and the result comes with a sentence explaining it and the cash a shorter cycle would free.
How to calculate the cash conversion cycle
The cash conversion cycle (CCC) is the number of days between cash leaving for a supplier and coming back from a customer. It is built from three figures: days inventory outstanding (inventory ÷ cost of sales × days in the period), days sales outstanding (receivables ÷ sales × days), and days payable outstanding (payables ÷ cost of sales × days). In the cash conversion cycle formula the first two lengthen the cycle and the third shortens it.
CCC = DIO + DSO − DPO · DIO = Inventory ÷ COGS × days · DSO = Receivables ÷ Sales × days · DPO = Payables ÷ COGS × days
What is working capital and how is the net figure worked out
Net working capital (NWC) is current assets minus current liabilities. Current assets turn into cash within a year: cash, receivables, inventory and prepayments. Current liabilities fall due within a year: supplier balances, short-term loans, the current portion of long-term loans, and zakat or tax payable. A positive figure means your near-term assets cover your near-term obligations with room to spare.
Current ratio and quick ratio
The current ratio (also called the working capital ratio) shows how many times current assets cover current liabilities; the quick ratio repeats the test without inventory, the slowest current asset to turn into cash. No Saudi regulation sets a required level for either, and the reading depends on the business: a supermarket runs on a low current ratio because it collects in cash, while a distributor selling on credit needs a higher one. Profitability and debt ratios are in the financial ratios calculator.
Days inventory, days sales and days payable: what each one tells you
Days inventory outstanding tells you how many days current stock lasts at the current selling rate; a rising figure points to slow-moving stock or over-buying. Days sales outstanding tells you how long money waits with customers; if it runs beyond the credit terms you grant, customers are paying late. Days payable outstanding tells you how long suppliers give you; more days help cash flow as long as they stay within the agreed terms.
A closing balance may not represent the year if trade is seasonal. In advanced mode, enter opening balances to work with averages, and enter purchases if you want DPO based on purchases rather than cost of sales. In the Kingdom, a VAT-registered business carries customer and supplier balances that include 15% VAT, while income-statement sales exclude it, so switch on the VAT option to keep the days from looking longer than they are.
How much cash a shorter cycle frees
Every day you take off collection frees one day of sales; every day you take off inventory, or add to supplier terms, frees one day of cost of sales. In example 1, a day of sales is SAR 10,000, so collecting 10 days faster frees SAR 100,000.00, and holding 10 fewer days of stock frees SAR 80,000.00, because a day of cost of sales is 8,000. That cash reduces the need for short-term financing or pays some of it down.
Common mistakes in calculating working capital
- Dividing inventory or payables by sales instead of cost of sales, which makes the days look shorter than they are.
- Mixing periods: quarterly sales with 365 days.
- Dividing VAT-inclusive balances by sales before VAT.
- Judging the current ratio without regard to the type of business.
- Counting damaged or slow-moving stock at book value in current assets.
- Stretching supplier terms by paying late rather than by agreement, which lifts the number and damages the relationship.
What to do with the result
Start with the longest of the three figures. If DSO is above your credit terms, review customer ageing and stop credit sales to accounts over their limit. If DIO is high, find the slow movers before ordering more. Download the analysis as a PDF for the management meeting, or download the Excel file from either tab of the working capital calculator, where the days update when you change the balances, and repeat the calculation every month to see the trend.
When you only see balances at month end
Inventory and collection days change with every invoice and every delivery, yet many businesses see them only after the month is closed, so decisions come late. At Microtec we offer businesses in Saudi Arabia accounting software (ERP) that brings sales, purchasing, inventory, finance and HR together, so receivable and stock balances come from the daily entries.