How to Calculate Working Capital Turnover Ratio?
When you calculate the working capital turnover, it helps an individual determine how profitable a business has been in a fixed period of time –half-yearly or annually. If you wish to consider the average working capital, you need to sum up the various amounts of working capital used over a time period and then divide them by a single measure of the time period –in years or in months. Simply put, it is the measure of net annual sales of a business in terms of the working capital needed for making those sales in a definite time period, usually a year. Working Capital is calculated as the difference between the company’s current assets less its current liabilities.Īs an extension, the working capital turnover is expressed as a ratio. What is Working Capital Turnover?Ī simple definition of working capital is the amount of money or capital that goes into the day-to-day operations of a business. This is why the concept of working capital turnover and the working capital turnover ratio is important from the point of view of studying the current financial status of any business and determining its exact sales growth. Net sales figures and the amount of profit are also indicators of how well a business has been doing.īut when you compare the business’s working capital to its turnover ratio for a fixed period, say for 6 months or a year, you get a more specific idea about how much each dollar used as working capital has earned for the business.
Or you can look up the income it earned via a profit and loss statement. You can find out information about its revenue generated in a particular period of time, say a year. There are several ways to determine the success or profitability of a business.
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