Days Working Capital

In retail, one of the nightmares for a business lies in having inventory sitting on the shelves, doing a whole lot of nothing, like a Congressman. The longer it takes to convert that inventory into cash by um, selling it...the more the cumulative cost of goods goes up. There is a capital cost in working capital. The loan on that fat brand spanking new smelting factory wasn't free, ya know. The time it takes to create liquidity from goods or services requires working capital...capital the business deploys or works with, to eventually create profits from sales of their inventory.

The days working capital is a calculation derived from two key balance sheet items: current assets and current liabilities. To get the ratio, you subtract current liabilities from current assets. The smaller the days working capital difference, the stronger the liquidity position of the company. You can imagine that if you had like tons of "excess" capital to work with (say, 1,000 days of working capital) then your company is probably in excellent financial shape and you can generally sleep at night if you're the one running it.