Working Capital Turnover Calculator

Working Capital Turnover

It is a measure to define how well the company has made investment in the company’s working capital for funding the daily operations and sales. The working capital turnover calculator helps in determining the efficient working of this by the management. Generally, a higher ratio is better and suggests that the company does not require more funds. Similarly, a lower ratio depicts poor management of short-term funds. But an extreme higher ratio may also have drawbacks attached to it.

Formula

For calculating the working capital turnover ratio, we divide net sales by working capital. The formula is as follows:

Working Capital Turnover Ratio = Net Sales / Working Capital

About the Calculator / Features

The working capital turnover calculator provides the result of the calculation ins seconds on entering the following variables:

  • Net sales
  • Working capital
working capital turnover calculator

Calculator

How to Calculate using Calculator

For calculating the working capital turnover ratio using this calculator, you are required the following variables only.

Net Sales

The figure of net sales can be obtained from the statement of income and expenditure. Net sales mean the sum total of sales less sales return, discounts, etc. during the period.

Working Capital

Working capital means monetary resources to fund the daily functioning of the company. It is the difference between the current assets and current liabilities of the company.

Example of Working Capital Turnover

Suppose, you are provided with the data of five companies, LG, Omega, Camron, Sky, and MG. You are required to calculate and interpret the working capital turnover ratio of all these five companies.

ParticularsLGOmegaCamronSkyMG
Current Assets2,0003,4501,730900750
Current Liabilities3,5003,2001,500800690
Sales2,0001,750800500550
Returns500285165120145
Discount & Taxes167300409070

Calculation of Working Capital:

CompanyCurrent Assets (CA)Current Liabilities (CL)Working Capital (CA – CL)
LG2,0003,500(1,500)
Omega3,4503,200250
Camron1,7301,500230
Sky900800100
MG75069060

Calculation of Net Sales:

CompanySales (1)Returns (2)Discount & Taxes (3)Net Sales (1)-(2)-(3)
LG2,0005001671,333
Omega1,7502853001,165
Camron80016540595
Sky50012090290
MG55014570335

Working Capital Turnover Ratio:

CompanyNet SalesWorking CapitalRatio
LG1,333(1,500)(0.89)
Omega1,1652504.66
Camron5952302.59
Sky2901002.9
MG335605.58

Interpretation

As discussed above, a higher ratio is better and suggests that the company does not require more funds. Similarly, a lower ratio depicts poor management of short-term funds. But an extreme higher ratio may also have drawbacks attached. In the above example, LG has a negative ratio while Omega and MG have a very high ratio. Camron and Sky have the optimum working capital turnover ratio.

Cautions

Since Omega and MG have a very high ratio, this may be due to the underutilization of working capital. And a lower or negative ratio depicts poor performance. A company and its management, hence, carefully allocate funds in the short run too. Efficient management of working capital will lead to less financial cost and lesser unnecessary expenses and diversion.

Share Knowledge if you liked
Sanjay Borad

Sanjay Bulaki Borad

Sanjay Borad is the founder & CEO of eFinanceManagement. He is passionate about keeping and making things simple and easy. Running this blog since 2009 and trying to explain "Financial Management Concepts in Layman's Terms".

Related Posts

Leave a Comment