Working Capital Turnover

The activity ratios measure performance of a current asset on the balance sheet against a corresponding area of the income statement. The working capital turnover is the most encompassing of all the activity ratios; in effect, it is the most general of the activity ratios. This particular ratio measures the ability of management to efficiently utilize net current assets. For those readers that don’t know or have forgotten, working capital is all gross current assets less current liabilities. Working capital reflects the liquid position of the company; basically its ability to endure economic hardship. The more positive the working capital position, the greater the ability to weather financial storms or react quickly to opportunity.

The working capital turnover rate formula uses net sales as the numerator and working capital as the denominator. The common goal is to have a very high value which indicates leveraging net current assets in the sales process.

To prove its value and of course explain its flaws, this chapter

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