Working Capital Turnover Ratio is a type of Turnover Ratio

$$Working\quad Capital\quad Turnover\quad Ratio=$$$$\frac { Net\quad Sales }{ Average\quad Working\quad Capital } $$

Where,

$$Average\quad Working\quad Capital=$$$$\frac { Opening\quad W.C\quad +\quad Closing\quad W.C }{ 2 } $$

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$$Average\quad Working\quad Capital=$$$$\frac { Opening\quad W.C\quad +\quad Closing\quad W.C }{ 2 } $$

**that determines the efficiency with which a business is using the working capital to support its sales.**$$Working\quad Capital\quad Turnover\quad Ratio=$$$$\frac { Net\quad Sales }{ Average\quad Working\quad Capital } $$

**Net Sales = Total Sales – Returns and Purchases**$$Average\quad Working\quad Capital=$$$$\frac { Opening\quad W.C\quad +\quad Closing\quad W.C }{ 2 } $$

## Significance and Interpretation

**High Working Capital Turnover Ratio indicates the company is very efficiently using the current assets and liabilities to support its sales.****Low Working Capital Turnover Ratio indicates that the company has a significant volume of accounts receivables and/or low current assets.**

__It must be noted that while comparing two companies on the grounds of Working Capital Turnover Ratio, they should be of the same industry.__

### Examples

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**Example 1:**

**Use the following data of ABC Ltd, to calculate its Working Capital Turnover Ratio.**

**Total Sales FY =**Rs. 1000000.00**Working Capital at the Beginning of FY =**Rs 170000.00**Working Capital at the End of FY =**Rs 450000.00

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**Solution: **

**Net Sales =**Rs. 1000000.00$$Average\quad Working\quad Capital=$$$$\frac { Opening\quad W.C\quad +\quad Closing\quad W.C }{ 2 } $$

**⇨**Rs. 310000.00**Average Working Capital =**(450000 + 170000) / 2**Working Capital Turnover Ratio =**Net Sales / Average Working Capital**⇨**1000000 / 310000 = 3.23**Hence, Working Capital Turnover Ratio = 3.23**