You can calculate working capital by subtracting a company's current liabilities from its current assets. Here's how to calculate a working capital turnover ratio: 1. Related: Learn About Being a Finance Manager How to calculate a working capital turnover ratio It can also determine if a company is able to pay off its debt in a set period and ensure it doesn't run out of cash as a result of increased production requirements. Lower working capital turnover is an indicator that there are opportunities for operational improvements.Ī working capital turnover ratio is common for determining a company's financial performance and analyzing its overall operations. This metric gives a company an accurate idea of the money it has available to put towards operations after meeting obligations such as debt payments.Ĭompanies with higher working capital turnover ratios are more efficient in running operations and generating sales. A working capital turnover ratio is important for any business but can be especially crucial for small businesses. In this ratio, working capital refers to the operating funds a company uses in day-to-day operations.Īnother term for this metric is net sales to working capital. The working capital turnover ratio should be carefully interpreted because a very high ratio may also be a sign of insufficient quantity of working capital in the business.View more jobs on Indeed View More What is the working capital turnover ratio?Ī working capital turnover ratio is a metric that calculates how efficiently a company uses working capital to generate sales. The ratio should be compared with the previous years’ ratio, competitors’ or industry’s average ratio to have a meaningful idea of the company’s efficiency in using its working capital. Generally, a high working capital turnover ratio is better. A low ratio indicates inefficient utilization of working capital during the period. It means each dollar invested in working capital has contributed $2.14 towards total sales revenue. The working capital turnover ratio of Exide company is 2.14. Required: Compute working capital turnover ratio of Exide from the above information.
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