Working Capital Turnover ratio is calculated by dividing earnings by the web working capital. Web working capital may be the excess of current assets over current liabilities.
The primary goal of calculating this ratio will be that a strong might love to connect internet current resources into earnings. Ratio essentially signifies that which level of net working capital can be useful in making you rupee of earnings.
Case of Working Capital Turnover
ABC company has generated earnings of Rs 40,000. Its net current resources are 10,000. Computer Networking Capital Turnover?
= 4 instances
The reciprocal of this ratio is now 0.25 that’s that the reciprocal of 4/1 will be 1/4. It means that for a single rupee of earnings, the business needs R S 0.25 of its net current earnings. This gap is bridge with bank borrowings and long-term sources of capital.
A high working capital turnover is consistently preferable. A high percentage indicates the company is utilizing its resources better. Which usually means that business is generating more revenue with less investments.
Exactly as with other financial ratios, you need to compare this ratio into one other businesses that is one of the very same industry. Besides this, an individual needs to compare it using an identical company’s past and projected operational capital turnover ratio.