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ROWC (Return on Working Capital)

Return on Working Capital (ROWC) measures how effectively a company generates profit relative to the working capital required to operate the business. General form: ROWC = Profit for the period / Average Working Capital

Why It Matters

  • •Shows how efficiently the company converts working capital into profit.
  • •Helps evaluate whether improvements in replenishment, lead times, supplier terms, or inventory planning increase returns relative to the working capital required.
  • •Provides a capital-based perspective that complements margin and profitability metrics.
  • •Enables before/after comparisons when assessing the effect of initiatives that influence the operating cycle.

Connection to Capital

ROWC links profitability to the amount of capital tied in the operating cycle. An improvement in ROWC means the company is generating more profit per unit of working capital, enabling faster growth with the same financial resources.

Related Terms

Working Capital CCC (Cash Conversion Cycle) Capital Efficiency

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