General Ledger > Financial Analysis > GL Working Capital Cycle Query

GL Working Capital Cycle Query

You use this program to view the results of applying the working capital cycle formula to your General Ledger values.

The Working Capital Cycle is a metric that expresses the length of time, in days, that it takes for a company to convert resource inputs into cash flows. It is an attempt to measure the amount of time needed to sell inventory, the amount of time needed to collect receivables and the length of time a company is afforded to pay its bills without incurring penalties (i.e. the time between outlay of cash and the cash recovery).

Toolbar and menu

Field Description
Compare  
Ledgers Select this to perform the query on all the actual ledgers and the budgets currently available in your SYSPRO company.
Periods Select this to perform the query for a specific ledger/budget year.

You indicate this ledger/budget year using the Financial year option.
Financial year Select the specific year's ledger or budget you want to query.

The number of years for which the actual ledgers are available for inclusion in the query depends on the number of years for which you are retaining your General Ledger history (General Ledger Setup). The number of budget ledgers available for inclusion in the query depends on the number of budgets defined (General Ledger Codes).
Go arrow Select this icon to view the results of the query for all the ledgers or for the period selected.

Ledgers/Periods

This treeview displays the hierarchy of the working capital cycle for all ledgers or for a specific period depending on your selection at the Compare field.

[Note]

To ensure that the results of the calculations are accurate, you need to ensure that your accounts are correctly defined. The accounts used in each calculation are included in the table below.

You can also use the GL Ratio Analysis Query program to view the General Ledger accounts included in the calculations of the various financial ratios.
Field Description
Hierarchy Select the calculation you want to perform.

The results are displayed in the Graph and Details panes.

The formulas for each calculation are listed below.

[Note]

The No of Days used in the Inventory, Receivables and Payables Turnover calculations are:

  • 365 when the calculation is performed for a financial year
  • 28 days per period if your Accounting periods is set to 13
  • 30 days per period if your Accounting periods is set to 12
  • 60 days per period if your Accounting periods is set to 6
  • 90 days per period if your Accounting periods is set to 4

The number of Accounting periods per year are defined in the Company Setup program.
Working Capital Cycle

[Inventory Turnover] + [Receivables Turnover] - [Payables Turnover]

where:

  • Inventory Turnover days = [Inventory] / [Cost of Sales] * 365 assuming a year, expressed in days
  • Receivables Turnover days = [Accounts Receivable] / [Sales] * 365 assuming a year, expressed in days
  • Payables Turnover days = [Accounts Payable] / [Purchases] * 365 assuming a year, expressed in days

The shorter the cycle, the more working capital a business generates, and the less it has to borrow or the more it has available for other activities such as investments. Therefore, the higher the number, the longer money is tied up in business operations and unavailable for other activities such as investments.
Inventory Turnover

[Inventory] / [Cost of Sales] * No of Days

where:

Inventory = the sum of the Closing Balances of all Inventory Control Accounts as defined in the Warehouses program (only available when the Inventory module is installed).

Cost of Sales = the sum of the Movements of all Cost of Sales Accounts as defined in AR Sales Ledger Interface (only available when the Sales Order module is installed) plus the value in the Cost of goods sold adjustment account (General Ledger Integration).
Receivables Turnover

[Accounts Receivable] / [Sales] * No of Days

where:

Accounts Receivable = the sum of the Closing Balances of all A/R Control Accounts as defined in AR Branches (only available when the Accounts Receivable module is installed).

Sales = the sum of the Movements of the Sales Accounts less the sum of the Sales Returns Accounts less the sum of the Trade Discounts Accounts as defined in AR Sales Ledger Interface (only available when the Sales Order module is installed).
Payables Turnover

[Accounts Payable] / [Purchases] * No of Days

where:

Accounts Payable = the sum of the Closing Balances of all A/P Control Accounts as defined in AP Branches (only available when the Accounts Payable module is installed).

Purchases = the sum of the Movements (transactions with IN source only) of the GRN Suspense Account as defined in General Ledger Integration and Warehouses (only available when the Inventory module is installed).

Graph

This pane contains the graph of the hierarchy you selected from the treeview in the Ledger/Periods pane.

Details

Column Description
Periods This indicates the period within the selected ledger for which the ratio values are displayed.
Ledgers This indicates the ledgers for which the ratio values are displayed.
Ratio Value

This indicates the number of days for the calculation you selected from the hierarchy (i.e. working capital cycle, inventory turnover, receivables turnover or payables turnover).

A short cash conversion cycle indicates good working capital management. Conversely, a long cash conversion cycle suggests that capital is tied up while the business waits for customers to pay. It is possible for a business to have a negative cash conversion cycle (i.e. receiving customer payments before having to pay suppliers). Examples are typically companies that employ Just In Time practices and companies that buy on extended credit terms and sell for cash.

Notes and warnings

Coding considerations

  • The Working Capital Cycle is also known as the:

    • Cash Conversion Cycle (or CCC)
    • Asset Conversion Cycle
    • Net Operating Cycle
    • Cash Cycle