Working capital metrics are used to measure a company's financial health and liquidity, or ability to generate cash quickly. Some working capital metrics include:
Working capital
Calculated by subtracting current liabilities from current assets, this metric shows if a company can cover its current liabilities. A working capital greater than 1 is a success indicator.
Days payable outstanding (DPO)
The average time it takes a company to pay its creditors and suppliers. This metric helps a company assess its cash flow management.
Inventory turnover
A measure of how liquid a company's assets are. Inventory is often used as collateral for loans, so banks want to ensure it's easy to sell.
Accounts receivable turnover ratio
A useful metric for working capital and cash flow management. It can also help improve trade receivables and debt collection.
Days inventory outstanding
A ratio that shows how quickly a company can turn its inventory into cash.
Other financial metrics include: Return on assets (ROA), Gross profit margin (GPM), Net profit margin, and Sustainable growth rate.
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