The working capital cycle seeks to find the length of time that funds are either required or provided Let's look at two examples Here we've got a just in time manufacture We've got their days figures but it will be good to see them on a chart One day 0, inventory is purchased And it's held in inventory for 7.5 days (that's the inventory days 7.5) What happens then? The inventory is sold and a 37 day receivable days period begins On day 44.5 the customer pays and here's the important bit, a cash flow happens Cash comes into the business on day 44.5 Now you might notice, there's been no cash outflow at the moment That's because the payable days is a whopping 53 days So cash comes in on day 44.5, it goes out on day 53 Fantastic! We've had cash sitting around the business for a little while That means we have a working capital cycle of 8.5 days of funding provided to the business A fantastic position for any company to be in, a source of free funding Let's compare that to a second company Here we have a home improvement retailer. Again let's see those numbers on a chart So day 0, inventory is purchased And we can see on day 16.8 the supplier is paid. That's the payables period 16.8 Importantly cash has gone out and what you might notice, no cash has come in yet Oh dear! So cash has gone out, we need to work out when the cash is going to come in. Let's find that! Well first of all, the inventory is held for 69 days. Whoah, that's a long inventory holding period It's then sold and we still have to wait another 7 days for customers to pay their bills The receivable days is 7 days So the customer pays on day 76, cash has come in But cash went out on day 16.8, that's a long time without cash That gives us a working capital cycle of 59.2 days and that means that funding is required here Or funding is needed