Working Capital Flashcards
Working capital definitions
Current assets - Current liabilities
Inventory + Receivables + Cash - Payables
Current ratio
Current assets/Current liabilities
Quick/Liquidity ratio
(Current assets - Inventory)/Current liabilities
Inventory period (in days)
(Inventory/COS) * 365
Receivables collection period (in days)
(Receivables/Sales) * 365
Payables payment period (in days)
(Payables/COS) * 365
(Payables/Purchases) * 365
Working capital cycle calculation
Receivables collection period
+ Raw materials inventory holding period
+ WIP inventory holding period
+ Finished goods inventory holding period
- Payables payment period
Raw materials inventory holding period
(Average inventory of raw materials/annual usage) * 365
General time period calculation
(BS figure/IS figure) * 365
Economic Order Quantity (EOQ) model
Sqrt(2cd/h)
C = Cost of placing one order
D = Demand for item over period
H = Holding cost of one unit for period
Re-order inventory system
Order when inventory falls below predetermined (economically calculated) level
Periodic review inventory system
Regular inspections of inventory levels
ABC inventory system
Inventory inspections prioritised based on importance of item
JIT inventory system
Give supplier order book on regular basis
Perpetual inventory system
Automatically generated by computerised system
