Working Capital Productivity

Operational management is becoming harder pressed to find reductions in the working capital required to keep the operations running, with the constant option of outsourcing, “off-shoring”, consolidation, and so on as the price of not running hard enough. Working capital numbers over time are a good measure of the cost awareness of your operation, but do not really address how productive the working capital is, for that you need a denominator in the equation.

Working capital is: Accounts recievable + inventories – accounts payable. If you add a denominator, you can get a measure of the productivity of your investment in working capital:

Working Capital Productivity= Working Capital/net sales.   How much better to measure the productivity of the investment rather than just the amount of the investment.

About strategyaudit

StrategyAudit is a boutique strategy and marketing consultancy concentrating on the challenges of the medium sized manufacturing businesses that make up the backbone of our economy. The particular focus is on their strategic and marketing development. as well as the business and operational efficiency improvements necessary for day to day commercial survival. We not only give advice, we go down "into the weeds" to ensure and enable implementation.
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