Worked-example setupScope and assumptions
- Both companies pass the stated comparison contract.
- All three turnover components use disclosed corresponding flows, simple average balances, and 365 days.
- The packet supplies no operational cause or optimization objective.
- Period
- Three consecutive years, with a detailed Birchline Year 3 recomputation
- Units
- Whole USD; turnover in times per year; days as aggregate equivalents
- Rounding
- Full precision internally; days displayed to two decimals
Reconcile Birchline Year 3
Build each component from the corresponding flow and average stock:
| Component | Opening | Ending | Average | Flow numerator | Turnover | Days |
|---|---|---|---|---|---|---|
| Receivables | $47,000 | $48,000 | $47,500 | $420,000 credit sales | 8.8421052632× | 41.2797619048 |
| Inventory | $71,000 | $70,000 | $70,500 | $305,000 cost of goods sold | 4.3262411348× | 84.3688524590 |
| Payables | $42,000 | $43,000 | $42,500 | $245,000 credit purchases | 5.7647058824× | 63.3163265306 |
The turnover quotients and days remain full precision in the checked block; the table truncates only for reading.
operating cycle = 84.37 DIO + 41.28 DSO = 125.65 days
cash conversion cycle = 125.65 − 63.32 DPO = 62.33 days
The cycle falls from 74.92 days in Year 1 to 69.13 in Year 2 and 62.33 in Year 3. Both Inventory and receivable days shorten. Payable days also shorten, which partly offsets the cycle reduction because DPO is subtracted.
Compare the mathematical paths
The linked Aster computation recomputes its DSO, DIO, DPO, and cash conversion cycle for all three years. Aster moves from 88.87 to 90.16 to 99.20 days. Birchline moves in the opposite direction. The packet supports these mathematical statements:
- Aster's Year 3 DIO and DSO are longer than Birchline's.
- Aster also has longer DPO, which offsets part of its longer operating cycle.
- The Year 3 difference between the two linked intervals is about 36.87 days.
That 36.87-day difference is an arithmetic comparison, not evidence that one company has stronger operations, liquidity, or value. Its significance and cause require the same terms, aging, demand, service, supplier, cash, and business-model evidence as the components.
The packet does not support “Birchline manages working capital better.” It does not show customer terms, Inventory availability, stockouts, supplier terms, late invoices, discounts, or cash needs.
Dual-audience conclusion
For the controller: retain exact numerator definitions, rollforward ties, average balances, day basis, and adjacent-period continuity. For the finance committee: investigate the component movements and tradeoffs before considering a policy change. A shorter interval is a result to explain, not a recommendation to restrict credit, cut Inventory, or delay suppliers.
Verified calculation · multi period statement analysis
The curriculum loader recomputed this example before it entered the site build. Expand any structured input to inspect the stated facts.
- common size balance base
- total assets
- common size income base
- net sales
- days basis
- actual-period-days
- entities
- 1 field
Inspect data
{
"birchline": {
"period_order": [
"year_1",
"year_2",
"year_3"
],
"periods": {
"year_1": {
"days_in_period": 365,
"ending": {
"accounts_payable": 41000,
"accounts_receivable": 46000,
"cash": 32000,
"inventory": 72000,
"noncurrent_assets": 154000,
"noncurrent_liabilities": 93000,
"other_current_assets": 16000,
"other_current_liabilities": 21000,
"total_equity": 165000
},
"flow": {
"cost_of_goods_sold": 270000,
"credit_purchases": 220000,
"merchandise_purchases": 272000,
"net_credit_sales": 360000,
"net_income": 44000,
"net_sales": 450000,
"operating_expenses": 115000
},
"opening": {
"accounts_payable": 40000,
"accounts_receivable": 45000,
"cash": 30000,
"inventory": 70000,
"noncurrent_assets": 140000,
"noncurrent_liabilities": 90000,
"other_current_assets": 15000,
"other_current_liabilities": 20000,
"total_equity": 150000
}
},
"year_2": {
"days_in_period": 365,
"ending": {
"accounts_payable": 42000,
"accounts_receivable": 47000,
"cash": 35000,
"inventory": 71000,
"noncurrent_assets": 175000,
"noncurrent_liabilities": 96000,
"other_current_assets": 17000,
"other_current_liabilities": 22000,
"total_equity": 185000
},
"flow": {
"cost_of_goods_sold": 286000,
"credit_purchases": 230000,
"merchandise_purchases": 285000,
"net_credit_sales": 388000,
"net_income": 50000,
"net_sales": 485000,
"operating_expenses": 125000
},
"opening": {
"accounts_payable": 41000,
"accounts_receivable": 46000,
"cash": 32000,
"inventory": 72000,
"noncurrent_assets": 154000,
"noncurrent_liabilities": 93000,
"other_current_assets": 16000,
"other_current_liabilities": 21000,
"total_equity": 165000
}
},
"year_3": {
"days_in_period": 365,
"ending": {
"accounts_payable": 43000,
"accounts_receivable": 48000,
"cash": 39000,
"inventory": 70000,
"noncurrent_assets": 195000,
"noncurrent_liabilities": 98000,
"other_current_assets": 18000,
"other_current_liabilities": 23000,
"total_equity": 206000
},
"flow": {
"cost_of_goods_sold": 305000,
"credit_purchases": 245000,
"merchandise_purchases": 304000,
"net_credit_sales": 420000,
"net_income": 56000,
"net_sales": 525000,
"operating_expenses": 135000
},
"opening": {
"accounts_payable": 42000,
"accounts_receivable": 47000,
"cash": 35000,
"inventory": 71000,
"noncurrent_assets": 175000,
"noncurrent_liabilities": 96000,
"other_current_assets": 17000,
"other_current_liabilities": 22000,
"total_equity": 185000
}
}
}
}
}- horizontal comparison
- immediately-preceding-period
- trend base
- first-period
- zero base percentage policy
- omit
Recomputed result
| Measure | Value |
|---|---|
| 1 cash conversion cycle days | 74.9202 |
| 2 cash conversion cycle days | 69.1349 |
| 3 accounts payable turnover | 5.7647 |
| 3 accounts receivable turnover | 8.8421 |
| 3 average accounts payable | 42,500 |
| 3 average accounts receivable | 47,500 |
| 3 average inventory | 70,500 |
| 3 cash conversion cycle days | 62.3323 |
| 3 days inventory outstanding | 84.3689 |
| 3 days payables outstanding | 63.3163 |
| 3 days sales outstanding | 41.2798 |
| 3 inventory turnover | 4.3262 |
| 3 operating cycle days | 125.6486 |