It measures how efficiently a business turns its working.
Net sales ÷ ((Beginning working capital + Ending working capital) / 2) Example of the Working Capital Turnover RatioĪBC Company has $12,000,000 of net sales over the past twelve months, and average working capital during that period of $2,000,000. The working capital turnover is a ratio to quantify the proportion of net sales to working capital. The calculation is usually made on an annual or trailing 12-month basis, and uses the average working capital during that period. To calculate the ratio, divide net sales by working capital (which is current assets minus current liabilities). The working capital turnover ratio shows the relationship between the funds used to finance a company's operations and the revenues a company generates as a result of conducting these. Conversely, a low ratio indicates that a business is investing in too many accounts receivable and inventory assets to support its sales, which could eventually lead to an excessive amount of bad debts and obsolete inventory write-offs. It represents a company’s ability to cover its.
A high turnover ratio indicates that management is being extremely efficient in using a firm's short-term assets and liabilities to support sales. Working Capital (WC), or Net Working Capital, is a measure of a company’s liquidity and operational efficiency and its financial health. Working capital is current assets minus current liabilities. The working capital turnover ratio measures how well a company is utilizing its working capital to support a given level of sales. In principle, the working capital turnover (or net working capital turnover) measures how much money a company required to run the business compared to its ability to generate revenues from operations.
What is the Working Capital Turnover Ratio?
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