Page 389 - F1 Integrated Workbook STUDENT 2018

Working capital management

Working Capital Ratios

Raw material inventory holding period

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

Average raw material inventory held
= ––––––––––––––––––––––––––––– × 365
Material usage

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

WIP holding period

This is the length of time goods spend in production.

Average WIP
= ––––––––––––– × 365
Production cost

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

Finished goods inventory holding period

This is the length of time finished goods are held between purchase/completion and
sale.

Average finished goods inventory held
= –––––––––––––––––––––––––––––– × 365
Cost of goods sold

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