Working capital ratios are the financial metrics measuring the efficiency of a company's operating cycle management: DSO (Days Sales Outstanding = receivables / revenue × 365), DIO (Days Inventory Outstanding = inventory / COGS × 365) and DPO (Days Payable Outstanding = payables / COGS × 365). Together they determine the Cash Conversion Cycle (CCC = DSO + DIO - DPO), measuring how many days elapse between paying suppliers and collecting from customers. In financial due diligence, multi-year ratio trends identify deterioration in credit control, inventory management or supplier payment — key drivers of working capital normalisation.

‍

Example: a Swiss distributor's DSO has increased from 42 to 58 days over 3 years — a 16-day deterioration representing CHF 1.3 million of additional working capital tied up in receivables. Investigation reveals two large customers with payment delays disputed invoices. This structural deterioration is treated as partially permanent in the normalised working capital calculation — increasing the BFR reference and the acquirer's funding needs post-closing.

‍

Hectelion analyses working capital ratios over 3–5 years in every due diligence to identify structural deterioration trends and their normalisation impact on the acquisition price bridge.