What is the formula for Operating Working Capital (OWC)?

What is the formula for Operating Working Capital (OWC)?

• A. Inventory Days + Receivables Days - Payables Days
• B. Net Working Capital
• C. Current Assets - Current Liabilities
• D. OWC = OpCA - OpCL

Answer: (D)

Operating Working Capital measures the capital tied up in day-to-day operations. It is defined as operating current assets minus operating current liabilities. OpCA covers assets that arise from ongoing operations, such as accounts receivable and inventory, while OpCL covers obligations from operations, like accounts payable and accrued expenses. This focus excludes non-operating cash and financing items, so OWC reflects only the funding needed to run the core business. Therefore the formula is OpCA minus OpCL. The other options either use days (a flow or timing metric) or refer to total current assets minus total current liabilities, which includes non-operating items and is not the same as operating working capital.

Operating Working Capital measures the capital tied up in day-to-day operations. It is defined as operating current assets minus operating current liabilities. OpCA covers assets that arise from ongoing operations, such as accounts receivable and inventory, while OpCL covers obligations from operations, like accounts payable and accrued expenses. This focus excludes non-operating cash and financing items, so OWC reflects only the funding needed to run the core business. Therefore the formula is OpCA minus OpCL. The other options either use days (a flow or timing metric) or refer to total current assets minus total current liabilities, which includes non-operating items and is not the same as operating working capital.