Working Capital Turnover Ratio Calculator
Enter opening and closing current assets, opening and closing current liabilities and revenue to see the working capital turnover ratio.
Updated
Working Capital Turnover Ratio Calculator
Our Working Capital Turnover Ratio Calculator shows how many units of sales a business generates from each unit of working capital. Type opening and closing current assets, opening and closing current liabilities and revenue for the period. It returns the working capital turnover ratio with average current assets, average current liabilities, average working capital and the days of revenue held in working capital. It suits finance managers, analysts comparing efficiency across companies, lenders and accounting students.
Quick answer
Working capital turnover is revenue ÷ average working capital: with average current assets of 1,000,000 and average current liabilities of 500,000, average working capital is 500,000, and revenue of 2,500,000 gives 2,500,000 ÷ 500,000 = 5.
- Averages: (opening + closing) ÷ 2 for current assets and for current liabilities.
- Higher ratio: more sales from each unit of working capital.
- Too high: can mean working capital is thin and liquidity is at risk.
- Negative working capital: the ratio turns negative and is not meaningful.
What Is the Working Capital Turnover Ratio?
The working capital turnover ratio compares a company's revenue with the working capital it uses to run day to day. A ratio of 5 means every 1 of working capital supported 5 of sales during the period. It is an efficiency measure: it shows how hard the money tied up in stock and receivables, net of what is owed to suppliers, is working.
Using averages of the opening and closing balance sheets smooths out a single year-end figure that may be unusually high or low.
Working Capital Turnover Formula
÷ average working capital
= average current assets
− average current liabilities
- Revenue: net sales for the same period as the two balance sheets, usually a year.
- Current assets: cash, receivables, inventory and other assets turned into cash within a year.
- Current liabilities: payables, short-term debt and other obligations due within a year.
Some sources divide by year-end working capital instead of the average. Using the average is more reliable when the balance sheet changed during the year.
How to Calculate Working Capital Turnover
Current assets were 900,000 at the start of the year and 1,100,000 at the end. Current liabilities were 450,000 and 550,000. Revenue for the year was 2,500,000:
- Average current assets. (900,000 + 1,100,000) ÷ 2 = 1,000,000.
- Average current liabilities. (450,000 + 550,000) ÷ 2 = 500,000.
- Average working capital. 1,000,000 − 500,000 = 500,000.
- Divide revenue by it. 2,500,000 ÷ 500,000 = 5.
The business turned its working capital over 5 times. Put the other way, working capital equals about 73 days of revenue (500,000 ÷ 2,500,000 × 365).
From Balance Sheet to Turnover
Working Capital Turnover Examples
| Business | Result |
|---|---|
| Wholesaler 400,000 ÷ 95,000 | ≈ 4.21 |
| Retailer 500,000 ÷ 185,000 | ≈ 2.70 |
| Startup 125,000 ÷ 152,500 | ≈ 0.82 |
The wholesaler (current assets 200,000 to 240,000, liabilities 120,000 to 130,000) runs lean and turns its working capital over more than four times. The retailer (assets 300,000 to 450,000, liabilities 180,000 to 200,000) carries more stock, so turnover is lower. The startup (assets 90,000 to 330,000 after raising cash, liabilities 45,000 to 70,000) holds far more working capital than its sales need yet, so its ratio is below 1.
How to Read the Ratio
| Ratio | Usual reading |
|---|---|
| Below 1 | Working capital may be idle or excessive |
| 1 to 2 | Modest use of working capital |
| 2 to 4 | Moderate, common in many sectors |
| Above 4 | Intensive use; check liquidity |
These bands are a rough guide only. A supermarket and a machinery maker will never have similar ratios. Compare a business with its own past years and with close competitors. A very high ratio is not automatically good: it can mean the company is short of working capital and could struggle to pay suppliers.
What Raises or Lowers the Ratio
Starting from the example with a ratio of 5, each change below is made on its own:
| Change | Ratio |
|---|---|
| Revenue 3,000,000 | 6 |
| Revenue 2,000,000 | 4 |
| Closing liabilities 750,000 | 6.25 |
| Closing assets 1,300,000 | ≈ 4.17 |
More sales on the same working capital raises the ratio. Building up stock or receivables lowers it. Stretching supplier payments also raises it, but only by shrinking the cushion of working capital.
When Working Capital Is Negative
If average current liabilities are larger than average current assets, average working capital is negative and so is the ratio. For example, average current assets of 100,000 against liabilities of 150,000 and revenue of 600,000 give 600,000 ÷ −50,000 = −12. A negative result says nothing about efficiency; check liquidity with the Working Capital Calculator and the Current Ratio Calculator instead.
What the Ratio Leaves Out
- Profit. Turnover counts sales, not margins; high turnover on thin margins can still lose money.
- Mix of assets. Cash, stock and receivables count the same even though only cash pays bills.
- Seasonality. Two balance sheet dates can miss peaks within the year.
For the parts of working capital, see inventory turnover and receivables turnover. The result is for education and planning and is not financial or investment advice.
Key Terms
- WC turnover
- Revenue ÷ average working capital.
- Working capital
- Current assets minus current liabilities.
- Average
- (Opening + closing) ÷ 2.
- Days held
- Working capital ÷ revenue × 365.
How to Use the Working Capital Turnover Ratio Calculator
- Enter current assets. Type opening and closing current assets, such as 900,000 and 1,100,000.
- Enter current liabilities. Type opening and closing current liabilities, such as 450,000 and 550,000.
- Enter revenue. Type revenue for the same period, such as 2,500,000.
- Read and copy the result. The ratio appears as you type, with the working, the averages and the days of revenue held. Press Copy to copy it, or Clear or Esc to start again.
Example: current assets of 200,000 and 240,000, current liabilities of 120,000 and 130,000 and revenue of 400,000 give a working capital turnover ratio of about 4.21.
Who Can Use This Calculator?
Frequently Asked Questions (FAQs)
How do you calculate the working capital turnover ratio?
Average the opening and closing current assets and current liabilities, subtract to get average working capital, then divide revenue for the period by that figure.
What is the working capital turnover formula?
Working capital turnover = revenue ÷ average working capital, where average working capital = average current assets − average current liabilities.
What is the working capital turnover for revenue of 2,500,000 and average working capital of 500,000?
It is 5, because 2,500,000 ÷ 500,000 = 5. Each 1 of working capital supported 5 of sales.
What is a good working capital turnover ratio?
It depends on the industry. As a rough guide 2 to 4 is common, below 1 suggests idle working capital, and a very high ratio can mean working capital is too thin.
Can the working capital turnover ratio be negative?
Yes, when average current liabilities exceed average current assets. A negative ratio is not a sign of efficiency and should be read as a liquidity warning.
Why use average working capital?
Averaging the opening and closing balances matches the balance sheet to the sales earned over the whole period and smooths out one unusual year-end figure.
Is a higher working capital turnover always better?
No. A higher ratio means more sales per unit of working capital, but if it comes from too little working capital the business may struggle to pay its bills.
Is the Working Capital Turnover Ratio Calculator free?
Yes. It is free to use, with no sign-up and no limit on how many times you use it.
Sources
- WallStreetMojo. Working Capital Turnover Ratio.
- Wall Street Prep. Working Capital Turnover.
- AccountingTools. Working capital turnover ratio.
- Wikipedia. Working capital.
Try our Working Capital Turnover Ratio Calculator to see how many sales each unit of working capital supports.