It’s important to track working capital diligently. This means that you can convert assets and liabilities into revenue (cash) quickly. When you are good at managing capital, you also have a strong cash conversion cycle (CCC). You also want to pay attention to your collection and inventory turnover ratios. To best manage working capital, you want to complete ratio analysis on operating expenses like: The average working capital turnover for another industry may be very different than in yours. If you want to see how your business performs compared to others, it’s important to focus on businesses in your same industry. This can result in inventory obsolescence or accounts receivable bad debt writeoffs. When sales are high, you’re turning a better profit.Ī low ratio can indicate over investment in current assets that are not supported by current sales. Having a high working capital turnover means that you are good at managing short-term assets and liabilities. High revenues are great for your company. What Does Working Capital Turnover Mean for Your Business? This means that for every dollar of working capital, your business turned a revenue of $4. When you use the formula, $10 million / $2.5 million = 4. Your average working capital during the same period was $2.5 million. Let’s say that your business has $10 million in net sales over a calendar year. ![]() Take your average current assets and subtract your average current liabilities. Now find your average working capital over the same period. Most businesses calculate on an annual basis. Both numbers should be from the same period. Then subtract this number from the company’s gross sales. Determine your net annual sales by adding up your returns, allowances, and discounts. The Working Capital Turnover Ratio Formulaįirst, you need to gather the appropriate data to use in your formula. When this happens, it’s a sign that your company needs to raise additional capital for future sales growth. Working capital turnover can get too high.They indicate that your company is more profitable. Higher working capital turnover ratios are better.Working capital turnover calculates the ability to use available funds to fuel growth and profit. ![]() Send invoices, track time, manage payments, and more…from anywhere. Pay your employees and keep accurate books with Payroll software integrationsįreshBooks integrates with over 100 partners to help you simplify your workflows ![]() Set clear expectations with clients and organize your plans for each projectĬlient management made easy, with client info all in one place ![]() Organized and professional, helping you stand out and win new clients Track project status and collaborate with clients and team members Time-saving all-in-one bookkeeping that your business can count on Tax time and business health reports keep you informed and tax-time readyĪutomatically track your mileage and never miss a mileage deduction again Reports and tools to track money in and out, so you know where you standĮasily log expenses and receipts to ensure your books are always tax-time ready Quick and easy online, recurring, and invoice-free payment optionsĪutomated, to accurately track time and easily log billable hours Wow clients with professional invoices that take seconds to create
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