Working Capital Ratios

Question 1

Current ratio

Answer 1

Current assets / Current liabilities

Question 2

Quick (liquidity) ratio

Answer 2

(Current assets - Inventory) / Current liabilities

Question 3

Inventory period (days)

Answer 3

(Inventory / Cost of sales) x 365

Question 4

Receivables collection period (days)

Answer 4

(Receivables / Sales) x 365

Question 5

Payables payment period (days)

Answer 5

(Payables / Cost of sales) x 365

Question 6

Raw materials inventory holding period (days)

Answer 6

(Average inventory of raw materials / Annal usage) x 365

Question 7

WIP inventory holding period (days)

Answer 7

(Average inventory of WIP / Annual cost of sales) x 365

Question 8

Finished goods inventory holding period

Answer 8

(Average inventory of finished goods / Annual cost of sales) x 365

Question 9

The working capital cycle

Answer 9

= Receivables collection period 
\+ raw materials inventory holding period
\+ WIP inventory holding period 
\+ finished goods inventory holding period
- payables period