Working Capital Turnover Ratio
The working capital turnover ratio indicates a company’s efficiency in using its working capital.
The working capital turnover ratio is an activity ratio that measures dollars of revenue generated per dollar of investment in working capital. Working capital is defined as the amount by which current assets exceed current liabilities.
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A higher working capital turnover ratio is favorable. It means that the company is developing its working capital more efficiently that is using less investment & generating more revenue.
Working Capital Turnover Ratio Formula
Working Capital Turnover Ratio Example:
Let’s take this example of TOYO Co Ltd. We have the following data to calculate working capital turnover ratio
| Revenue | 300,000 |
| Current Assets | 800,000 |
| Current Liabilities | 450,000 |
Let find out the working capital first, as we know
Working Capital = Current Assets − Current Liabilities
= 800,000 – 450,000
Working Capital = 350,000
Working Capital Turnover Ratio = Revenue_________
Average Working Capital
Working Capital Turnover Ratio = 300,000
350,000
Working Capital Turnover Ratio = 0.85
It indicates that TOYO Co using his investment in working capital less efficiently as indicated by its lower working capital turnover ratio
