1. Inventory (days of inventory)
How many days, on average, the product sits on the shelf before being sold.
R$
R$
Cost of the goods sold during the year.
Average inventory period
—
2. Receivables (days sales outstanding)
How many days pass between the sale and the money in the bank.
R$
R$
Average collection period
—
3. Payables (days payable outstanding)
How many days you have to pay your supplier.
R$
R$
Average payment period
—
4. Cash conversion cycle
Inventory + receivables − payables
—
Green up to 15 days, yellow between 15–45, red above 45. A negative cycle (rare) means the customer finances the business — the supermarket model.
Reading guide
How to read your cash conversion cycle
Three fictional scenarios so you can practice reading the results before looking at your own numbers.
Green
- What to look at
- Cycle up to 15 days (or negative, like a supermarket).
- What it means
- Suppliers and customers finance the working capital — free cash is left to invest or distribute.
- Next steps
- Lock the current terms into contracts and use the free cash to negotiate cash discounts.
Yellow
- What to look at
- Cycle between 15 and 45 days.
- What it means
- The business still funds its own working capital, but any late customer creates a squeeze.
- Next steps
- Cut idle inventory, offer early-payment discounts, or negotiate 15 extra days with suppliers.
Red
- What to look at
- Cycle above 45 days.
- What it means
- The company keeps financing customers and inventory — revenue grows while cash gets tighter.
- Next steps
- Shorten customer terms, cut slow-moving SKUs, and renegotiate supplier terms before taking on debt.
Quick quiz
Did I really understand the traffic light?
3 quick questions based on the guide above. Answer and see the correct answers right away.
- 1DIO = 60 days, DSO = 30 days, DPO = 40 days. What is the cash cycle?
- 2What does a negative cash cycle mean, like in a supermarket?
- 3The cycle blew out to 60 days (red). Which sequence does the guide recommend first?
Answered: 0/3
Go deeper in the book
Chapter 6 — The cash cycle
In the book you learn to shorten the cycle with small changes to inventory, collections, and purchasing.
Buy the book →