Working capital cycle for a trade
|
Inventories days (time inventories are
held before being sold)
+
Trade receivables days (how long the
credit customers take to pay)
-
Trade payables days (how long the
company takes to pay its suppliers)
=
Working capital cycle (in days)
|
(Inventories/ cost of sales)x 365 days
+
(Trade receivables / credit sales) x 365 days
-
(Trade payables / purchases)x 365 days
=
Working capital cycle (in days)
|
Please note that for "trade payable days" calculation, if information about credit purchases isn't known then cost of sales is used instead.