# Working Capital Turnover Ratio

## Working Capital Turnover Ratio

### Working Capital Turnover Ratio-

The working capital turnover ratio establishes a relationship between Revenue from Operations or Turnover and Working Capital. The working capital turnover ratio indicates the speed at which the working capital is utilized for business operations.

### Key Points of working capital turnover ratio

• This ratio measures the efficiency at which the working capital is being used by a Business Enterprise.
• A higher working capital turnover ratio shows efficient use of working capital.
• A low working capital turnover ratio indicates the underutilization of working capital.
• A very high working capital turnover ratio is also dangerous, as it is a sign of overtrading.
• A very low working capital turnover ratio may be a sign of under-trading comparison to working capital.

### Formula For Calculating Working Capital Turnover Ratio

#### Working Capital = Current Assets – Current Liabilities

##### Current Assets = Current Investments + Inventories (Excluding Spare Parts and Loose Tools) + Trade Receivables + Cash and Cash Equivalents +Short Term Loans and Advances + Other Current Assets.

Or

Current Assets = Total Assets- Non current Assets

##### Current Liabilities= Short-Term Borrowings +Trade Payables +Other Current Liabilities+ Short-term Provisions.

Or

Current Liabilities= Total Liabilities-Non Current Liabilities-Shareholders fund

Golden Rules Of Accounting MCQs with solved answers

## Working Capital Turnover Ratio

###### 1. Example-

Calculate Working capital turnover ratio:

Revenue from Operations = 48,00,000

Working Capital =8,00,000

Solution:

Working capital turnover ratio=48,00,000/8,00,000

Working capital turnover ratio= 6 Times

## Working Capital Turnover Ratio

###### 2. Example-

Calculate Working capital turnover ratio:

Revenue from Operations  = 48,00,000

Current Assets =18,00,000

Current Liabilities=6,00,000

Solution:

Working Capital = Current Assets – Current Liabilities

Working Capital =18,00,000-6,00,000

Working Capital =12,00,000

Working capital turnover ratio=48,00,000/12,00,000

Working capital turnover ratio= 4 Times

## Working Capital Turnover Ratio

###### 3. Example-

Calculate Working capital turnover ratio:

Sundry debtors   4,00,000

Inventories 1,60,000

Marketable securities      80,000

Cash   1,20,000

Prepaid expenses     40,000

Bills payables     80,000

Sundry creditors   2,60,000

Debentures   2,00,000

Outstanding Expenses     60,000

“Revenue from Operations”  20,00,000

Solution:

Working Capital = Current Assets – Current Liabilities

Current Assets = Sundry debtors+Inventories +Marketable securities+Cash + Prepaid expenses

Current Assets =4,00,000+1,60,000+80,000+1,20,000+40,000

Current Assets =8,00,000

Current Liabilities= Bills payables+Sundry creditors +Outstanding Expenses

Current Liabilities=80,000+2,60,000+60,000

Current Liabilities =4,00,000

Working Capital = 8,00,000 – 4,00,000

Working Capital = 4,00,000

Working capital turnover ratio=20,00,000/4,00,000

Working capital turnover ratio= 5 Times

## Working Capital Turnover Ratio

###### 4. Example-

Calculate Working capital turnover ratio:

Total Assets= 85,00,000

Non-current Assets= 40,00,000

Non-Current Liabilities=26,00,000

Shareholders fund=24,00,000

Revenue from Operations=90,00,000

Current Assets = Total Assets- Non current Assets

Current Assets = 85,00,000 – 40,00,000

Current Assets =45,00,000

Current Liabilities= Total Liabilities-Non Current Liabilities-Shareholders fund

Current Liabilities= 85,00,000-26,00,000-24,00,000

Current Liabilities= 35,00,000

Working Capital = Current Assets – Current Liabilities

Working Capital = 45,00,000 – 35,00,000

Working Capital = 10,00,000

Working capital turnover ratio=90,00,000/10,00,000

Working capital turnover ratio= 9 Times

## Working Capital Turnover Ratio

Revenue vs Profit

Golden Rules Of Accounting