Paired cash-conversion ribbons and funding bridgeRevenue basis for DSO; COGS basis for inventory and DPO
Business
Working Capital Scenario Calculator
Place a current operating policy and a proposed policy on the same revenue, margin, and financing basis. The model isolates changes in receivables, inventory, and supplier terms, then reconciles cash released, cash-conversion-cycle reduction, annual carrying-cost savings, and the value of any early-payment discount sacrificed.
Net cash released-
Current operating working capital-
Proposed operating working capital-
Cash conversion cycle change-
Gross annual carrying-cost savings-
Net annual benefit-
Largest policy lever-
Recommended scenario-
Proposed operating capital relative to current policy
Policy comparison
Trace each cycle-day change into cash and carrying cost
Current policyProposed policy
| Component | Current | Proposed | Day change | Cash impact | Decision note |
|---|
Scenario setup
How to compare a proposed cash-conversion policy
- Use trailing-twelve-month revenue and a gross margin consistent with the same period.
- Enter current and proposed DSO, inventory days, and DPO separately.
- Add the financing rate that represents the marginal cost of carrying working capital.
- Include annual discounts, supplier concessions, or relationship costs required by the proposal.
- Read cash release first, then judge whether its recurring carrying-cost benefit pays for the trade-off.
Decision method
A day of receivables is not worth the same as a day of inventory
DSO is valued on revenue because customers owe the invoice value. Inventory and DPO are valued on COGS because they represent product cost rather than gross profit. The calculator keeps these bases separate before reconciling the total funding release.
Detailed calculation process
General formulas for operating working capital and scenario value
COGS = Revenue × (1 − Gross margin)NWC = Revenue ÷ 365 × DSO + COGS ÷ 365 × DIO − COGS ÷ 365 × DPOCash released = NWC(current) − NWC(proposed)Gross annual savings = Cash released × Financing rateNet annual benefit = Gross annual savings − Annual trade-off costPolicy-lever reconciliation
Trace the $1.26 million release to receivables, inventory, and payables
Receivables release = $24,000,000 / 365 x (55 - 46) = $591,781Inventory release = $14,400,000 / 365 x (72 - 60) = $473,425Payables release = $14,400,000 / 365 x (43 - 38) = $197,260 Together the levers release $1,262,466. At an 8% financing rate that is $100,997 of gross annual value; after the $18,000 operating trade-off, the modeled net benefit is $82,997.
Implementation evidence
What to confirm before approving the proposal
- A/R aging by customer segment and dispute status
- Inventory aging, service levels, and stockout history
- Supplier terms, early-payment discounts, and concentration
- Whether a day-policy change is operationally achievable
Model boundary
Cash release is not automatically recurring profit
The balance-sheet release normally occurs once. Only the avoided financing cost is recurring. Tax, bad-debt changes, SKU mix, seasonality, and implementation costs beyond the entered annual trade-off are excluded.
Working capital scenario FAQ
Questions treasury and operations should settle
Can the proposed scenario increase cash usage?
Yes. Slower collections, more inventory, or shorter supplier terms produce a negative release.
Why subtract a trade-off cost?
A policy may require customer discounts, expedited freight, or supplier concessions. Ignoring those costs overstates economic value.
Should cash conversion cycle alone decide the scenario?
No. CCC is directional; the currency bridge and operational evidence reveal the size and feasibility of each lever.
Practical examples
Working Capital Scenario Calculator in real planning situations
- Compare a collection program with an inventory-reduction plan.
- Measure whether a DPO extension offsets a lost supplier discount.
- Separate revenue growth effects from cycle-day improvements.
Important note
Before relying on this result
Calculated from the entered values using the displayed accounting method. Reconcile material decisions with source records and applicable accounting policy.
Additional Working Capital Scenario Calculator questions
Why do both scenarios use the same revenue?
Holding revenue constant isolates the cash impact of the operating policy. Model growth separately when the decision includes a sales change.
Is a higher DPO always better?
No. The calculator deducts an entered annual discount or relationship cost from the carrying-cost benefit.
Can cash release be negative?
Yes. A proposed policy that ties up more operating capital produces a funding increase.
Does the comparison include tax?
No. It is a pre-tax operating-capital comparison.