Working capital days definition



This is a very good way to measure how much money (i.e. capital) a company has tied up in capital.

The definition is:

average working capital / annual revenues


What you get is a number which shows how many days it takes for the company to convert its working capital into revenues.

The faster a company does this, the better.

This measure is especially useful when looking at companies which spend a lot on capex, most notably construction companies.

If, for example, it takes 200 days for a construction company to convert its working capital into revenues, that indicates that their could be very significant exposure to interest costs as the working capital may have to be financed by borrowings (such as costly bank loans). 

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