Working Capital Turnover

See: Working Capital.

Working capital turnover is Sales divided by Working Capital.

What is “working capital,” you ask? It’s the money that companies have to burn (spend)...so basically, their assets minus their liabilities. When you take sales and divide it by working capital, you get a ratio. The bigger the ratio, the better you look to outsiders. The higher your working capital turnover, the more efficient you’re being with your money.

Think about it: the bigger the number is on top in a fraction, the bigger that fraction becomes. When sales is proportionally larger than working capital, it means there’s proportionally more money coming in through sales than is being spent by the business. If you’re burning through cash, that bottom number in the fraction (working capital) will swell like a beached whale, making the whole fraction smaller (and making that company look bad, also like a beached whale).

Analysts use working capital turnover to be judgemental overlords on companies, comparing them all to each other to see who’s the biggest beached whale of them all.

And hey, if you want to know more about working capital than anyone else you know, check out Shmoop's Accounting course. Go forth and balance.