What is the 'Working Capital Turnover'

Working capital turnover is a measurement comparing the depletion of working

capital used to fund operations and purchase inventory, which is then converted
into sales revenue for the company. The working capital turnover ratio is used to
analyze the relationship between the money that funds operations and the sales
generated from these operations. For example, a company with current assets of
$10 million and current liabilities of $9 million has $1 million in working capital,
which may be used in fundamental analysis.

To calculate the ratio, divide net sales by working capital (which is current assets minus
current liabilities). The calculation is usually made on an annual or trailing 12-month
basis, and uses the average working capital during that period. The calculation is:

Net sales
(Beginning working capital + Ending working capital) / 2

Working Capital Leverage:

Working capital leverage measures the sensitivity of return
on investment (ROI) of changes in the level of current
assets (CA), symbolically:
WOL = Percentage Change in ROI/Percentage Change in CA
In case the earnings are not affected by the change in current assets, then
working capital leverage can be simply calculated as:

WCL = CA/TADCA

Where, CA = Current Assets

TA = Total Assets
DCA = Change in the level of Current Assets

Current Liabilities to Net Worth

- a measure of the extent to which the enterprise is using creditor funds versus their
own investment to finance the business

Current Liabilities to Net Worth = Current Liabilities / Liabilities + Equity

A ratio of .5 or higher may indicate inadequate owner investment or an extended

accounts payable period. Care should be taken not to offend your vendors (creditors) to
the extent it affects your ability to conduct day to day business