Working Capital Turnover Ratio Calculator

Revenue: dollars

Opening Current Assets: dollars

Closing Current Assets: dollars

Opening Current Liabilities: dollars

Closing Current Liabilities: dollars

Average Current Assets:

dollars

Average Current Liabilities:

dollars

Average Working Capital:

dollars

Working Capital Turnover Ratio:

1. What is the Working Capital Turnover Ratio Calculator?

Definition: This calculator computes the working capital turnover ratio ($ WCTR $), which measures how efficiently a company uses its working capital to generate revenue, along with average current assets ($ ACA $), average current liabilities ($ ACL $), and average working capital ($ AWC $).

Purpose: Helps businesses and investors assess operational efficiency, manage liquidity, and compare performance across companies or industries.

2. How Does the Calculator Work?

The calculator follows a four-step process to compute $ WCTR $:

Formulas:

$$ ACA = \frac{OCA + CCA}{2} $$

$$ ACL = \frac{OCL + CCL}{2} $$

$$ AWC = ACA - ACL $$

$$ WCTR = \frac{R}{AWC} $$

Where:

$ WCTR $: Working Capital Turnover Ratio (times)
$ ACA $: Average Current Assets (dollars)
$ ACL $: Average Current Liabilities (dollars)
$ AWC $: Average Working Capital (dollars)
$ R $: Revenue (dollars)
$ OCA $: Opening Current Assets (dollars)
$ CCA $: Closing Current Assets (dollars)
$ OCL $: Opening Current Liabilities (dollars)
$ CCL $: Closing Current Liabilities (dollars)

Steps:

Step 1: Determine $ R $. Input the revenue from the income statement.
Step 2: Determine $ OCA $ and $ CCA $. Input the opening and closing current assets from the balance sheet.
Step 3: Determine $ OCL $ and $ CCL $. Input the opening and closing current liabilities from the balance sheet.
Step 4: Calculate $ ACA $ and $ ACL $. Average the opening and closing values for assets and liabilities.
Step 5: Calculate $ AWC $. Subtract $ ACL $ from $ ACA $.
Step 6: Calculate $ WCTR $. Divide $ R $ by $ AWC $.

Note: A negative $ AWC $ can occur if liabilities exceed assets, potentially leading to a negative $ WCTR $, which may indicate liquidity issues or efficient use of minimal working capital.

3. Importance of Working Capital Turnover Ratio Calculation

Calculating $ WCTR $ is crucial for:

Operational Efficiency: A higher ratio suggests effective use of working capital to generate sales.
Liquidity Management: Helps assess whether a company has sufficient working capital to cover operations.
Financial Health: Indicates potential over- or under-investment in working capital relative to sales.

4. Using the Calculator

Example 1 (Company Alpha): $ R = \$8,000,000 $, $ OCA = \$3,000,000 $, $ CCA = \$2,000,000 $, $ OCL = \$1,000,000 $, $ CCL = \$800,000 $:

Step 1: $ R = \$8,000,000 $.
Step 2: $ OCA = \$3,000,000 $, $ CCA = \$2,000,000 $.
Step 3: $ OCL = \$1,000,000 $, $ CCL = \$800,000 $.
Step 4: $ ACA = (3,000,000 + 2,000,000) / 2 = \$2,500,000 $, $ ACL = (1,000,000 + 800,000) / 2 = \$900,000 $.
Step 5: $ AWC = 2,500,000 - 900,000 = \$1,600,000 $.
Step 6: $ WCTR = 8,000,000 / 1,600,000 = 5x $.
Results: $ ACA = \$2,500,000 $, $ ACL = \$900,000 $, $ AWC = \$1,600,000 $, $ WCTR = 5x $.

A turnover ratio of 5x indicates efficient use of working capital by Company Alpha.

Example 2: $ R = \$6,000,000 $, $ OCA = \$1,500,000 $, $ CCA = \$1,800,000 $, $ OCL = \$700,000 $, $ CCL = \$900,000 $:

Step 1: $ R = \$6,000,000 $.
Step 2: $ OCA = \$1,500,000 $, $ CCA = \$1,800,000 $.
Step 3: $ OCL = \$700,000 $, $ CCL = \$900,000 $.
Step 4: $ ACA = (1,500,000 + 1,800,000) / 2 = \$1,650,000 $, $ ACL = (700,000 + 900,000) / 2 = \$800,000 $.
Step 5: $ AWC = 1,650,000 - 800,000 = \$850,000 $.
Step 6: $ WCTR = 6,000,000 / 850,000 \approx 7.06x $.
Results: $ ACA = \$1,650,000 $, $ ACL = \$800,000 $, $ AWC = \$850,000 $, $ WCTR = 7.06x $.

A turnover ratio of 7.06x suggests strong working capital efficiency.

Example 3: $ R = \$4,000,000 $, $ OCA = \$1,000,000 $, $ CCA = \$800,000 $, $ OCL = \$1,200,000 $, $ CCL = \$1,400,000 $:

Step 1: $ R = \$4,000,000 $.
Step 2: $ OCA = \$1,000,000 $, $ CCA = \$800,000 $.
Step 3: $ OCL = \$1,200,000 $, $ CCL = \$1,400,000 $.
Step 4: $ ACA = (1,000,000 + 800,000) / 2 = \$900,000 $, $ ACL = (1,200,000 + 1,400,000) / 2 = \$1,300,000 $.
Step 5: $ AWC = 900,000 - 1,300,000 = -\$400,000 $.
Step 6: $ WCTR = 4,000,000 / -400,000 = -10.00x $.
Results: $ ACA = \$900,000 $, $ ACL = \$1,300,000 $, $ AWC = -\$400,000 $, $ WCTR = -10.00x $.

A negative turnover ratio of -10.00x indicates liabilities exceed assets, suggesting potential liquidity challenges or efficient use of minimal working capital.

5. Frequently Asked Questions (FAQ)

Q: What is the working capital turnover ratio?
A: The working capital turnover ratio ($ WCTR $) measures how many times a company generates revenue from its average working capital in a period.

Q: Why use average working capital?
A: $ AWC $ accounts for changes in current assets and liabilities over the period, providing a more accurate efficiency measure.

Q: Can WCTR be negative?
A: Yes, a negative $ WCTR $ occurs when average working capital is negative (liabilities exceed assets), indicating potential financial strain or unique operational efficiency.