What is Working Capital Cycle?
Nexa Consultancy | Startup & Finance Glossary
The working capital cycle (also known as the cash conversion cycle) is the time it takes for a company to convert its investments in inventory and other resources into cash. It measures the liquidity and operational efficiency of a business.
For Startups: For businesses that hold inventory (like D2C or hardware), managing the working capital cycle is critical. A long cycle can tie up significant capital, even for a profitable business, creating a cash flow crisis.
Calculation: Cycle = Days Inventory Outstanding + Days Sales Outstanding - Days Payable Outstanding
Example: A D2C brand takes 60 days to sell inventory, 3 days to receive payment, and has 30 days to pay its suppliers. Its working capital cycle is 33 days.