What is Working Capital Turnover Ratio
There is direct relation of working capital of company with its sales. We have more control over working capital because we can change current asset or current liability according to our need. But, there is no full control over our sales because external business environment affects our level of sales. Working capital turnover ratio is good tool to take decision to manage sales. It shows the use of working capital for sales. Both high and low working capital turnover ratio is not good. Because low WCTR means low inefficient use of working capital in operation and very high working capital turnover ratio does not show good position of company because its shows company is operating with high short-term debt obligations. Only optimum working capital turnover ratio is the best. Formula of Working capital turnover ratio.
= Cost of sale or sales / average working capital
This ratio also shows the return in volume on our net invested current assets. We can also compare it with Asset turnover ratio which shows the relationship of sales and total assets
= Cost of Sales or Sales / Total Assets
If we write earning asset instead of writing cost of sales or sales, it will be the Earning assets to total assets ratio. It is also better way to check the position of company
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