From revenue and average working capital, compute the turnover ratio: how much revenue each dollar of working capital generates.
Input Data
Results
At a glance:Working capital turnover is revenue divided by average working capital, showing sales generated per dollar of working capital.
Formula
workingCapitalTurnoverRatio = revenueAmount / averageWorkingCapital
$$\text{Working Capital Turnover} = \dfrac{\text{Revenue}}{\text{Average Working Capital}}$$How to Use
- Enter the revenue.
- Enter the average working capital.
- Read the working capital turnover ratio.
FAQ
Is a higher working capital turnover always better?
Generally a higher ratio means the firm supports more sales with less working capital—good efficiency. But too high can be a warning: if working capital is stretched too thin, liquidity is insufficient and any sales slowdown or payable due date can cause trouble. The ideal level should be compared with peers, balancing efficiency and liquidity safety.
What does a low working capital turnover indicate?
A low ratio usually means the firm puts in a lot of working capital but earns relatively little revenue, possibly from inventory overstock, slow receivables collection, or idle cash and current assets. Dig further into days inventory outstanding and days sales outstanding to find where the cash is stuck.
Why use average working capital rather than the ending figure?
Revenue is a flow accumulated over the period, while working capital is a point-in-time stock. Using only the ending figure is distorted by seasonality or year-end adjustments. The average of beginning and ending balances (even better, monthly averages) matches the numerator's period and gives a more representative ratio.
How is working capital turnover related to inventory and receivables turnover?
Working capital turnover is a 'macro' efficiency metric, while inventory and receivables turnover are the two key 'micro' components that decompose it—they are closely linked. Working capital = current assets − current liabilities, and the two largest current-asset items are typically 'inventory' and 'receivables'. So a firm's working capital turnover (how much revenue per unit of working capital) depends heavily on how well it manages inventory and receivables: high inventory turnover (goods sell fast, no overstock) and high receivables turnover (money collected fast, no delay) both shrink the working capital tied up and lift the working capital turnover; conversely, overstocked inventory or uncollected receivables inflate working capital and lower the ratio. So when you find a low working capital turnover, you can use inventory and receivables turnover to 'diagnose' which link is the problem—selling too slowly or collecting too slowly. This top-down decomposition is the essence of financial analysis. Analyse these three alongside the cash conversion cycle (CCC) for the full picture; our related calculators help examine each step.
Why use average working capital rather than the ending figure (detail)?
For this ratio (and inventory/receivables turnover), the denominator usually takes an 'average' (typically beginning plus ending over 2), not a single 'ending' figure, mainly for accuracy and representativeness. Two reasons. First, the matching principle: the numerator 'revenue' is a flow accumulated over the whole period (a full year), while working capital is a balance-sheet stock at one point in time. Comparing one day's (ending) working capital against a whole year's revenue is like using an instant snapshot to represent the year—the time bases do not match. The beginning-and-ending average better represents the 'average working capital employed over the period', matching the year's revenue. Second, smoothing volatility: many firms' working capital swings widely within a year from seasonality or special transactions—a retailer stocking heavily before Lunar New Year or Christmas may show an abnormally high or low year-end figure that is not the yearly norm. Averaging smooths these short-term swings so the ratio is not distorted by a special point in time, yielding a result closer to actual operations. So whenever beginning and ending data are available, use average working capital; if only a single point is available, understand the ratio may be affected by that point's particularity.
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.