Days Working Capital
Candlefocus EditorThe DWC calculation is determined by dividing a company’s current assets (cash, inventories, and receivables) by its total sales over a given period of time (usually one month). A lower days working capital value is usually an indication of a more efficient business, as it means the company can quickly liquidate its assets, collect receivables and convert them into sales.
DWC is not only used to evaluate a company’s current financial proactiveness, but it can also indicate future financial performance. By monitoring a company’s DWC, it is possible to detect whether more resources are needed to carry out sales operations and to maintain current assets in a continual liquid state.
For a business to remain in a healthy financial position, it needs to maintain a healthy DWC figure. Companies with a higher DWC value are more likely to struggle with meeting their financial obligations on time, whereas companies with a lower DWC figure would be in better standing if sales suddenly declined.
For larger companies, DWC isn’t the only factor to be taken into consideration when assessing financial performance. Other indicators, such as the DWC ratio and average collection period, can also be used to gauge how effectively the company is converting its current resources into sales.
In conclusion, DWC can play an important role in determining the current and predicted future financial health of a company. It is an effective metric to identify whether a company has enough resources to continue its operations in the short-term and can be used to identify potential problems in a company’s cash flow.