Formula for Operating Working Capital
Operating Working Capital = |
Cash is excluded from Operating Working Capital (OWC) as it is considered a Non-Operating Asset. Whilst cash is a 'Current Asset', the decision to hold cash is not directly related to operations.
When cash is used to purchase items for a company's operations, it becomes an operating asset and is included in the OWC calculation.
Example: If a business uses cash to purchase materials for product production, then the materials would be included in the OWC calculation as 'Work in Progress'. Cash is not included in the calculation before transforming into an Operating Asset because a business could decide to build cash for a future transaction.
If you included cash in the calculation for OWC before it became an Operating Asset, it would falsely appear that operating efficiency had increased.
Where can I see Operating Working Capital in Fathom?
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This feature is included with Operating Working Capital can be added as a line to a custom financial statement within Pro Reports.
It is also used within formulas for some of Fathom’s KPIs, which are only accessible to companies on a Fathom Pro plan.
💡Smart Tip: For a detailed breakdown of KPIs and their formulas, visit our KPI Glossary.
Working Capital
While 'Working Capital' and 'Operating Working Capital' have similar names, they are calculated differently.
Working Capital follows the layout of the Balance Sheet and summarises the line items above it.
Working Capital = Total Current Assets - Total Operating Liabilities |
Where can I see Working Capital in Fathom?
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This feature is included with Working Capital can be seen within a company’s Balance Sheet when it is viewed in the 'Separation of Operations and Finance' format. You can see this in:
It is also used within formulas for some of Fathom’s KPIs, which are only accessible to companies on a Fathom Pro plan.
Cash Conversion Cycle
While the Cash Conversion Cycle formula appears similar to the Operating Working Capital formula, their measurements differ.
The Cash Conversion Cycle measures the time between purchasing raw materials and collecting Accounts Receivable from customers. So, it measures how long until the cash invested in raw materials is received as cash revenue by the business.
Therefore, the Cash Conversion Cycle KPI is measured in days, as are the variables used in the formula.
Cash Conversion Cycle = |
Where can I see Cash Conversion Cycle in Fathom?
Cash Conversion Cycle is available as a default KPI for companies on a Fathom Pro plan. You can track KPIs within the Analysis tools and in Pro Reports.
This metric can also be found in Summary Reports, within a chart on the ‘Working Capital’ summary report page.
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