The working capital turnover ratio is also referred to as net sales to working capital. It indicates a company’s effectiveness in using its working capital.

The working capital turnover ratio is calculated as follows: net annual sales divided by the average amount of working capital during the same 12 month period.

For example, if a company’s net sales for the year 2007 were $2,400,000 and its average amount of working capital during the year 2007 was $400,000, its working capital turnover ratio was 6 ($2,400,000 divided by $400,000).

Working capital is defined as the total amount of current assets minus the total amount of current liabilities. As indicated above, you should use the average amount of working capital for the year of the net sales.

As with most financial ratios, you should compare the working capital turnover ratio to other companies in the same industry and to the same company’s past and planned working capital turnover ratio.

Download our Working Capital Turnover Ratio Form and Template.

Learn more about Financial Ratios.

Take our Financial Ratios Exam.

About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

He is the creator of the AccountingCoach Pro which has been praised for its ability to simplify accounting in a way that anybody can understand.

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