Working Capital Days

Key Highlights

• The number of "Working Capital Days" shows how long it takes for a business to turn its "working capital" (current assets minus current liabilities) into cash.

• Working Capital Days= (Working Capital/Revenue) x 365

What is Working Capital Days?

The number of "Working Capital Days" shows how long it takes for a business to turn its "working capital" (current assets minus current liabilities) into cash. It checks how well a business handles its short-term debts and assets.

Formula

If you divide working capital by revenue, you get working capital days.

Working Capital Days= (Working Capital/Revenue) x 365

Where:

• Working capital is the difference between current assets and current obligations.

• Sales added up over a year equals revenue.

How it Works?

• A lower Working Capital Days number means that a company quickly turns its working capital into revenue, which means that its processes are running smoothly.

• A higher Working Capital Days number means that money is being held for a longer time, which could cause problems with funding.

Example

Let's say a business has ₹10 crore in working capital and ₹50 crore in sales every year.

Working Capital Days= (10/50) x 365 = 73 Days

This means that it takes 73 days for the company to turn its working capital into income.

Why is it Important?

• Gives businesses a way to measure their revenue and cash flow efficiency.

• Any changes to assets, receivables, or payables will be affected.

• Important for businesses that need a lot of working cash, like retail and manufacturing.