About this lesson
Working capital: DSO, DIO, DPO and forecasting the balances
Days measure how long cash is tied up: DSO = receivables ÷ revenue × 365 (=B4/B2*365), DIO = inventory ÷ cost of goods sold × 365, DPO = payables ÷ cost of goods sold × 365. To forecast, reverse it: receivables = DSO ÷ 365 × revenue (=C8/365*C2). Net working capital is receivables + inventory − payables.
Using Google Sheets? Do this lesson in Sheets.
=B4/B2*365What you'll practise
Work out Coolabah Foods' debtor, inventory and creditor days, then turn next year's targets back into balances and see how much cash they free up.
4 steps · 40 points · the cells outlined in gold below
- working capital
- DSO
- DIO
- DPO
- cash conversion cycle
- forecasting balances
The data
| A | B | C | |
|---|---|---|---|
| 1 | ($m) | FY25 | FY26 |
| 2 | Revenue | 386.4 | 421.0 |
| 3 | Cost of goods sold | 271.5 | 294.7 |
| 4 | Receivables | 52.9 | |
| 5 | Inventory | 41.8 | |
| 6 | Payables | 37.2 | |
| 7 | |||
| 8 | Debtor days (DSO) | 45.0 | |
| 9 | Inventory days (DIO) | 52.0 | |
| 10 | Creditor days (DPO) | 50.0 | |
| 11 | Cash conversion cycle (days) | ||
| 12 | Net working capital | ||
| 13 | Cash freed up |