🧮 Key Formulas in Working Capital Management

 

🧮 Key Formulas in Working Capital Management

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📌 1. Working Capital

$$\text{Working Capital} = \text{Current Assets} - \text{Current Liabilities}$$

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🔁 2. Gross Working Capital

$$\text{Gross Working Capital} = \text{Total Current Assets}$$

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🧾 3. Net Working Capital

$$\text{Net Working Capital} = \text{Current Assets} - \text{Current Liabilities}$$

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🔄 4. Operating Cycle (Working Capital Cycle - WCC)

$$\text{WCC} = \text{Inventory Conversion Period} + \text{Receivables Collection Period} - \text{Payables Deferral Period}$$

Where:

• Inventory Conversion Period =

  $$\frac{\text{Average Inventory}}{\text{Cost of Goods Sold}} \times 365$$

• Receivables Collection Period (Debtor Days) =

  $$\frac{\text{Average Accounts Receivable}}{\text{Net Credit Sales}} \times 365$$

• Payables Deferral Period (Creditor Days) =

  $$\frac{\text{Average Accounts Payable}}{\text{Net Credit Purchases}} \times 365$$

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📈 5. Current Ratio

$$\text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}}$$

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⚡ 6. Quick Ratio (Acid Test Ratio)

$$\text{Quick Ratio} = \frac{\text{Quick Assets}}{\text{Current Liabilities}}$$

Where:
Quick Assets = Current Assets – Inventory – Prepaid Expenses

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💰 7. Working Capital Turnover Ratio

$$\text{Working Capital Turnover} = \frac{\text{Net Sales}}{\text{Net Working Capital}}$$