Inventory carrying cost calculator
What a full warehouse costs you per year, and what share of your inventory that is.
≈ 4 minutes
Work out my carrying cost
Your cash conversion cycle
Days pass between paying for goods and collecting on the sale, and you finance those days. The cash conversion cycle measures exactly how many: the days the product spends in the warehouse, plus the days you take to collect, minus the days you take to pay. It is the most direct measure of the capital your operation keeps trapped.
Every calculation runs in your browser. The figures you type are never sent to a server and are never stored.
Your results will appear here
Enter inventory, receivables and payables, with sales from the same period.
- Average inventory and cost of goods sold
- Receivables and revenue for the period
- Payables and days in the period
Calculation results
Cash conversion cycle
—
Days between paying the supplier and collecting from the customer.
Days of inventory—DIO
Days sales outstanding—DSO
Days payable outstanding—DPO
Largest component—Where the bottleneck is
Negative cycle?—
See the breakdown
| Days of inventory | — |
| Days sales outstanding | — |
| Days payable outstanding | — |
| Conversion cycle | — |
Recommended next step
If inventory is your longest stretch, that is where the capital is trapped. Put a number on what holding it costs before deciding how far to cut it.
Work out my carrying costResults are estimates based on the information you enter. Fees, taxes and platform terms can change: always check the figure that matters to you against your invoice or the official platform. They do not replace your real invoices, your official accounts or professional tax, financial or legal advice.
What this tool works out
This cash conversion cycle calculator measures the days that pass from money leaving your account to buy goods until it comes back collected from your customer.
The cycle has three stretches. DIO is the days inventory waits in the warehouse before selling. DSO is the days you take to collect once sold. DPO is the days you take to pay your supplier, and it is subtracted because during that time the supplier is financing the operation.
The figures must come from the same period
This is the most important condition and the one most often broken. If average inventory is annual, cost of goods sold has to be annual too and the period days 365. Mixing a closing balance with quarterly sales produces a cycle that means nothing.
Balances — inventory, receivables, payables — are best taken as period averages, not snapshots of the final day. A December close with an empty warehouse describes a full year badly.
- Average inventory and cost of goods sold for the period
- Average receivables and revenue for the same period
- Average payables, compared against cost of goods sold
- Days in the period: 365 for a year, 90 for a quarter, 30 for a month
How the formula works
Each stretch is a balance divided by the flow that consumes it, times the days in the period.
DIO = average inventory / cost of goods sold x days
DSO = receivables / revenue x days
DPO = payables / cost of goods sold x days
cash conversion cycle = DIO + DSO - DPO
Note the denominators: inventory and payables are compared against cost of goods sold, because both are carried at cost. Receivables are compared against revenue, because invoices are at selling price. Using one denominator for all three is a common error that distorts DSO.
A worked example
A business with $48,000 of average inventory and $300,000 of annual cost of goods sold. It has $22,000 outstanding to collect against $480,000 of revenue, and $61,000 outstanding to pay suppliers. The period is 365 days.
| Item | Value |
|---|---|
| Average inventory | $48,000.00 |
| Cost of goods sold | $300,000.00 |
| DIO: days of inventory | 58.4 |
| DSO: days to collect | 16.7 |
| DPO: days to pay | 74.2 |
| Cash conversion cycle | 0.9 |
| Days in the period | 365 |
Inventory takes 58.4 days to sell and collection arrives 16.7 days later, but supplier payment is deferred 74.2 days. The cycle lands at barely 0.9 days: collection and payment happen practically at the same time. The dominant stretch is DPO, so suppliers are financing much of this operation.
How to read the result
There is no universally good cycle, and be wary of anyone handing you a target figure without knowing your business. What counts as reasonable depends on the model: a business with heavy inventory lives with cycles that would be unthinkable in one that builds to order.
What is informative is the component that weighs most. If DIO is the problem, goods are sitting still and the lever is turnover. If it is DSO, you are slow to collect and the lever is payment terms. If DPO is your longest stretch, your suppliers are financing a good part of your operation.
And the trend says more than the absolute number. A cycle stretching month after month is a warning even while the value still looks reasonable.
A negative cycle is a valid result
When DPO exceeds DIO plus DSO, the cycle comes out negative: you collect from customers before paying suppliers. Instead of financing the operation, you are being financed by them.
It means the operation is funded by your suppliers' credit rather than by your own cash, and it shows up in businesses that sell fast and pay on terms. It is a valid result, not an error, but it should be read in context: it depends on keeping those payment terms and says nothing on its own about whether the business is profitable.
That said, a sustained negative cycle depends on keeping long payment terms. If a supplier tightens conditions, the advantage disappears at once and you need cash ready for the change.
What to decide next
If DIO is your dominant stretch, capital is trapped in the warehouse. It is worth putting a number on what holding it costs: inventory carrying cost is usually higher than assumed and it is what turns a problem of days into a problem of money.
What this assumes
- Every figure belongs to the same accounting period
- Balances are period averages, not point-in-time closes
- Inventory and payables are carried at cost
- Revenue includes all sales in the period
- The period in days matches the period of the amounts
What it does not cover
- Seasonality within the period analyzed
- Differences between product lines or channels
- The financing cost of the cycle days
- Customer prepayments or advances to suppliers
- A benchmark target value for your sector
Frequently asked questions
Which period should I use?
Whatever matches your figures: 365 days if the amounts are annual, 90 if quarterly, 30 if monthly. What matters is not the period chosen but that all three balances and both flows come from that same period.
Why is DSO divided by revenue and not by cost of goods sold?
Because outstanding invoices are issued at selling price, not at cost. Dividing them by cost of goods sold would inflate DSO. Inventory and payables do go over cost, because both are carried that way.
Do I use average or closing balances?
Averages, whenever you can calculate them. A point-in-time close may coincide with an empty warehouse or with your biggest campaign of the year, and either way it describes the full period badly. Averaging monthly closes is usually enough.
Is a negative cycle an error?
No, it is a valid result: it means you collect before you pay and that the operation is funded by your suppliers' credit. It shows up in fast-turning businesses with long payment terms. Whether it is favorable depends on being able to sustain those terms, and it does not replace checking whether the business makes money.
What counts as a good cash conversion cycle?
It depends on the sector and the model, and we are not going to hand you a target without knowing your business. The same number can be comfortable with heavy inventory and worrying when selling to order. Compare your own trend before someone else's benchmark.
What do I do if my DIO is very high?
Capital is trapped in the warehouse. The levers are buying smaller quantities more often, improving demand forecasting, or clearing references that do not turn. It is worth first measuring what that inventory costs you per year, which is usually the decisive argument.
Does this cycle include the financing cost of those days?
No, it measures days, not money. To turn it into cost you would apply your own financing rate to the working capital those days tie up. The cycle tells you how long; the price of that time is set by your bank.
What should I work out after this?
What the inventory the cycle points at is costing you. If DIO is your dominant stretch, the cost of holding that stock turns a problem of days into a problem of money.
Official sources
Wall Street Prep — cash conversion cycle and its componentshttps://www.wallstreetprep.com/knowledge/cash-conversion-cycle-ccc/
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