1. What is Working Capital Turnover?

Working Capital Turnover is a financial ratio that measures how efficiently a company is using its working capital to support sales. It shows the relationship between the funds used to finance operations and the revenues a company generates.

2. How Does the Calculator Work?

The calculator uses the Working Capital Turnover formula:

Where:

• \( Sales \) — Total sales revenue (in currency)
• \( Average Working Capital \) — Average of current assets minus current liabilities over the period (in currency)

Explanation: A higher ratio indicates more efficient use of working capital, while a lower ratio may suggest the company is investing too much in accounts receivable and inventory relative to sales.

3. Importance of Working Capital Turnover

Details: This ratio is crucial for assessing operational efficiency and liquidity. It helps businesses understand how well they're managing their short-term assets and liabilities to generate sales.

4. Using the Calculator

Tips: Enter sales and average working capital in the same currency units. Both values must be positive numbers. The result is expressed in "turns" (how many times working capital turns over to generate sales).

5. Frequently Asked Questions (FAQ)

Q1: What is a good Working Capital Turnover ratio?
A: The ideal ratio varies by industry, but generally, a ratio between 1.2 and 2.0 is considered good. Higher ratios typically indicate better efficiency.

Q2: How is Average Working Capital calculated?
A: It's typically calculated as (Beginning Working Capital + Ending Working Capital) / 2, where Working Capital = Current Assets - Current Liabilities.

Q3: What does a low Working Capital Turnover indicate?
A: A low ratio may indicate inefficient use of working capital, excess inventory, or poor collection of accounts receivable.

Q4: Can the ratio be too high?
A: Yes, an extremely high ratio might indicate a company is under-invested in working capital and may face liquidity problems.

Q5: How often should this ratio be calculated?
A: It's typically calculated annually, but can be calculated quarterly for more frequent monitoring of working capital efficiency.