Measuring Working Capital
Working capital performance metrics are powerful indicators on how well a company is managing Working Capital and managing the company overall. These metrics not only highlight the drivers of Working Capital, but also shed light on the dynamics of a supply chain. It shows how well a company manages their inventory, receivables and payables. There are many metrics that can shed light on how well a company is managing these three areas. In addition to custom metrics developed as part of your initiative, below are some of the metrics that a company might want to see in order to measure their success.
1. Cash Conversion Cycle (CCC) – A negative cash conversion cycle makes Working Capital a source of cash and highlights how well a company is being managed. CCC = DSO + DIO – DPO
2. Days Sales Outstanding (DSO) – measures the time between the close of a sale and the collection of payment.
3. Days Inventory Outstanding (DIO) – measures the amount of time items stay in inventory.
4. Days Purchasing Outstanding (DPO) – measures the amount of time a company takes to pay their vendors.
5. Inventory Turns – measures how well inventory is managed and how the rate at which inventory turns over.
6. Open AP – amount of accounts payable that needs to be paid.
7. Open AR – amount of accounts receivable in which the cash has not yet been received from your customers.
8. Purchase lead-time –This is defined as the time period from placing the order to time by which the raw materials arrive at the store. This lead-time is use full in deciding upon the level for the reorder point.
9. Manufacturing lead-time – This is defined as the time taken by the manufacturing systems to finish the product. This time includes the process time taken at each workstation, and travel time between the workstation.
10. Delivery lead time/ response time – This is the time period from receiving the order to dispatching the finished goods.
11. On-Time Customer Performance – the measure of how well you meet customer expectation of shipments from orders received by customers.
12. On-Time Vendor Performance – the measure of how well your vendors meet your expectations regarding delivery of raw materials and components.
13. Revenue – recognized sales.
14. Cost of Goods Sold – direct costs such as material costs, material overhead costs, outside processing costs, overhead costs and resource costs.
15. Gross Margins – (Revenue – COGS).
16. Net Margin – takes into account selling price minus cost of goods sold, freight, commissions, royalties, returns, rebates and other costs. Net Margin gives a clearer picture of profitability as compared to gross margins.
17. Cash Flow Projections – is often a rolling number of weeks ( e.g. Rolling 13 weeks) that projects inflows and outflows of cash.
18. Spend – amount that a company purchases raw materials and components from a vendor.
19. Vendor Quality – defines the quality of raw materials and components that is delivered to a customer, sometimes measured in rejects as compared to accepted raw materials and components.
1. Cash Conversion Cycle (CCC) – A negative cash conversion cycle makes Working Capital a source of cash and highlights how well a company is being managed. CCC = DSO + DIO – DPO
2. Days Sales Outstanding (DSO) – measures the time between the close of a sale and the collection of payment.
3. Days Inventory Outstanding (DIO) – measures the amount of time items stay in inventory.
4. Days Purchasing Outstanding (DPO) – measures the amount of time a company takes to pay their vendors.
5. Inventory Turns – measures how well inventory is managed and how the rate at which inventory turns over.
6. Open AP – amount of accounts payable that needs to be paid.
7. Open AR – amount of accounts receivable in which the cash has not yet been received from your customers.
8. Purchase lead-time –This is defined as the time period from placing the order to time by which the raw materials arrive at the store. This lead-time is use full in deciding upon the level for the reorder point.
9. Manufacturing lead-time – This is defined as the time taken by the manufacturing systems to finish the product. This time includes the process time taken at each workstation, and travel time between the workstation.
10. Delivery lead time/ response time – This is the time period from receiving the order to dispatching the finished goods.
11. On-Time Customer Performance – the measure of how well you meet customer expectation of shipments from orders received by customers.
12. On-Time Vendor Performance – the measure of how well your vendors meet your expectations regarding delivery of raw materials and components.
13. Revenue – recognized sales.
14. Cost of Goods Sold – direct costs such as material costs, material overhead costs, outside processing costs, overhead costs and resource costs.
15. Gross Margins – (Revenue – COGS).
16. Net Margin – takes into account selling price minus cost of goods sold, freight, commissions, royalties, returns, rebates and other costs. Net Margin gives a clearer picture of profitability as compared to gross margins.
17. Cash Flow Projections – is often a rolling number of weeks ( e.g. Rolling 13 weeks) that projects inflows and outflows of cash.
18. Spend – amount that a company purchases raw materials and components from a vendor.
19. Vendor Quality – defines the quality of raw materials and components that is delivered to a customer, sometimes measured in rejects as compared to accepted raw materials and components.
posted by finoptions at
8:46 AM
