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Corporate IssuersModule 4 of 7

Working Capital and Liquidity

5

Concepts

6

Formulas

1

Decisions

3

Quiz Questions

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Key Concepts

5 concepts covered in this module.

Working Capital

Current assets - Current liabilities. Measures short-term financial health and operational efficiency.

Cash Conversion Cycle (CCC)

DOH + DSO - DPO. Days to convert raw materials to cash. Lower CCC = more efficient working capital management.

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Formulas

6 essential formulas for this module.

Cash Conversion Cycle

CCC = DOH + DSO - DPO

Where: DOH = Days of Inventory on Hand, DSO = Days Sales Outstanding, DPO = Days Payable Outstanding

DOH

DOH = (Avg Inventory / COGS) × 365

Where: Days to sell inventory

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Decision Frameworks

1 decision frameworks to guide your analysis.

How to improve CCC?

  • Reduce DOH: better inventory management, JIT
  • Reduce DSO: faster collection, stricter credit terms
  • Increase DPO: negotiate longer payment terms with suppliers

Mind Map

Visual overview of how concepts connect in this module.

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Working Capital

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Answer
Current assets - Current liabilities. Measures short-term financial health and operational efficiency.
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Capital Investments and Capital Allocation