performance measurement-working capital period

This topic has 3 replies, 2 voices, and was last updated 11 years ago by John Moffat.

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March 10, 2015 at 1:13 pm #231891
Molly Sum
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calculation of ratio working capital period whether can be :

ratio calculation :
1. working capital / sales x 365 days ? or
2. working capital / cost of sales or operating costs x 365 days ? and
what is included in the working capital?
thank you
March 10, 2015 at 2:11 pm #231897
John Moffat
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There is no such thing as “ratio working capital period”.

There is the working capital ratio (normally called current ratio) which is current assets / current liabilities.

There is the working capital period (or working capital cycle) which is receivables days plus inventory days less payables days.
March 13, 2015 at 2:04 pm #232278
Molly Sum
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it identifies how long it takes to convert the purchase of inventories into cash from sales and is calculated as :

working capital / sales x 365 days ?
March 13, 2015 at 3:21 pm #232284
John Moffat
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Firstly, what you have written is not a ratio. (Ratios are not measured in days!)

Secondly what measures how long it takes to convert purchases into cash is the working capital period which I have written in my previous reply.
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