Working capital and cashflow ratios.
Working capital is measure of how well current liabilities are covered by the cash flow generated from the business operations. Working capital and cashflow ratios are also a measure of a company's efficiency.
The working capital ratio is calculated as current assets less current liabilities.
| Working capital days |
365 x average working capital (expressed in $)
/
Annual sales revenue (expressed in $) |
The number of days it takes to convert working capital into revenue |
|
Debtor days |
365 x Accounts receivable (expressed in $)
/
Sales revenue (expressed in $) |
The average number of days customers take to pay their invoices |
|
Inventory days |
365 x Inventory (expressed in $)
/
Cost of goods sold (expressed in $) |
The average number of days the business can supply from inventory (stock) on hand |
|
Trade creditor days |
365 x Trade creditors (expressed in $)
/
Cost of goods sold (expressed in $) |
The average number of days the business takes to pay its suppliers |