1. Average Working Capital = (Beginning Working Capital + Ending Working Capital) / 2. Both values can be obtained from the Balance Sheet. Here we discuss how to calculate Working Capital Turnover Ratio and its formula along with practical examples and downloadable excel sheets. If the inventory level is lower in comparison to the payables, than the working capital is high, which is in this case. To understand more about this topic in greater depth, visit Working Capital Turnover Ratio formula and interpretation. Home Depot is a US-based home improvement retailer (supplies tools, construction products, and various similar services). Formula to calculate capital turnover ratio = Sales/ Capital Employed For the past 5 years, revenues are decreasing. To calculate working capital turnover, you take the working capital per dollar of sales and divide it into one. Working capital turnover ratio formula indicates the velocity of the utilization of net working capital. What is Capital Turnover? This ratio is relatively higher when compared with other tech-based companies. Working Capital Turnover Ratio Formula. The ratio is very useful in understanding the health of a company. This happens when the company’s Current Liability exceeds Current Assets. To calculate the Working capital turnover ratio, we need. Working capital is defined as the amount by which current assets exceed current liabilities. Similarly, even in the case of Financial Ratios, we perform trend analysis. This ratio helps in understanding how many times a company was able to turn over its working capital during the year. A lower ratio generally signals that the company is not generating more revenue with its working capital. Working Capital Turnover Formula To calculate the ratio, divide net sales by working capital (which is current assets minus current liabilities). These companies generally have moderate current liabilities on their Balance Sheet relative to current assets. This is another formula which looks at the relationship between net working capital and net sales to see how efficient the company is. In the case of Amazon, clearly, there is an increase in the turnover ratio for the past few years. Hence, such companies have a relatively lower working capital turnover ratio of only 1-2 times. Hence, in the absence of complete information, we are safe to use closing working capital instead of Average Working Capital. The company must try to decrease the overall working capital requirement. Adopt better supply chain management techniques and monitor the inventory movement to identify any blockage of inventories. generating more revenue using less … A high turnover ratio means that management is very successful in using the short-term assets and liabilities of a business to sustain sales. Average Working Capital = $ 21,152. 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