Ch 4 · Working Capital Management

🧮 Formula sheet

1. 1.Operating Cycle = RM days + WIP days + FG days + Debtors days − Creditors days
2. 2.WC Required = Cost × (Op Cycle / 365)
3. 3.Baumol C* = √(2bT/i) where b=order cost, T=annual cash need, i=interest rate
4. 4.Miller-Orr Z = ³√(3bσ² / 4i); Upper Limit = 3Z, Return Point = Z