Home
Back
Working Capital Turnover Formula:
| From: | To: |
Working Capital Turnover (WCT) is a financial ratio that measures how efficiently a company uses its working capital to generate sales revenue. It indicates how well the company is managing its short-term assets and liabilities to support sales operations.
The calculator uses the Working Capital Turnover formula:
Where:
Explanation: A higher ratio indicates more efficient use of working capital, while a lower ratio may suggest inefficient use or excess working capital.
Details: This ratio is crucial for assessing operational efficiency, liquidity management, and overall financial health. It helps businesses optimize their working capital levels and improve cash flow management.
Tips: Enter sales revenue and average working capital in the same currency units. Both values must be positive numbers. The result shows how many times working capital turns over during the period.
Q1: What is a good Working Capital Turnover ratio?
A: It varies by industry, but generally a ratio between 1.5 and 2.0 is considered good. Higher ratios indicate better efficiency.
Q2: How is Average Working Capital calculated?
A: Average Working Capital = (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 suggest inefficient use of working capital, excess inventory, poor collection practices, or inadequate sales relative to working capital investment.
Q4: Can the ratio be too high?
A: Yes, an extremely high ratio might indicate overtrading or insufficient working capital, which could lead to liquidity problems.
Q5: How often should this ratio be calculated?
A: It should be calculated regularly, typically quarterly or annually, to monitor trends and identify potential working capital management issues.