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Working capital management

4.3 Cash operating cycle ratios

Inventory holding period

This is the length of time inventory is held between purchase/completion and sale.

Inventory
= ––––––––––––– × 365
Cost of sales

Manufacturing industries will instead have:

Raw material inventory holding period

This is the length of time raw materials are held between purchase and being used in
production.

Raw material inventory
= –––––––––––––––––– × 365
Material usage

NB: where usage cannot be calculated, purchases give a good approximation.

and:

WIP holding period

This is the length of time goods spend in production.
Work-in-progress inventory held
= –––––––––––––––––––––––––– × 365
Production cost

NB: where production cost cannot be calculated, cost of goods sold gives a good
approximation.

and:

Finished goods inventory holding period

This is the length of time goods spend in production.

Finished goods inventory held
= ––––––––––––––––––––––––– × 365
Cost of goods sold

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