A high capital turnover may be an indicator that a company does not have enough working capital to maintain the sales growth it is experiencing. This can lead to the company becoming insolvent in the future if it does not adjust its working capital to sales ratio. If you calculate your company's working capital turnover ratio and discover that it is excessively high, you may need to analyze your financial situation and make appropriate adjustments to avoid collapse.
The following is an example of calculating and interpreting the working capital turnover ratio of a business:. This means that XYZ Company's working capital turnover ratio for the calendar year was 2. A ratio of 2 is typically an indicator that the company can pay its current liabilities and still maintain its day-to-day operations.
This means that the company's working capital turnover ratio for the year was positive and that the company is most likely in good financial health. Find jobs. Company reviews. Find salaries. Upload your resume. Sign in. Career Development. What is working capital turnover ratio? How to calculate working capital turnover ratio. Advantages of working capital turnover ratio. Guarantees liquidity Increases overall financial health Enhances a company's value Prevents operation interruptions Boosts profitability.
Guarantees liquidity. Increases overall financial health. Enhances a company's value. Prevents operation interruptions. Boosts profitability. Disadvantages of working capital turnover ratio. It requires fixed monthly interest payments and is used by companies experiencing rapid growth. Keep up-to-date with the latest news, events, and educational content delivered straight to your inbox.
Skip to content. What is the Working Capital Turnover Ratio? Working Capital is calculated by subtracting total liabilities for total assets. What Does It Tell You? Shows your company is running smoothly. Indicates there is limited need for additional funding. May give your company a competitive edge over thee competition. It is important to look at working capital ratio across ratio and also in comparison to the industry to make a good analysis of the formula.
A higher working capital generally signals that the company is generating more revenue with its working capital. It is important to look at all the part that goes into the formula.
It is important to look at working capital ratio across ratio and also in comparison to the industry to make a good. This article has been a guide to what is Working Capital Turnover Ratio?
Here we discuss how to calculate Working Capital Turnover Ratio and its formula along with practical examples and downloadable excel sheets. You can learn more about accounting from the following articles —.
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