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How is working capital different from the working capital turnover ratio?

Working capital is a measurement based on subtracting current liabilities from current assets. In contrast, the working capital turnover ratio relates the average working capital of your business to net sales. While working capital gives you a snapshot of liquidity, the working capital turnover ratio indicates how efficiently the company turns that liquidity into sales.

Can a company’s working capital turnover ratio be negative?

Yes, it’s entirely possible for a business to have a negative working capital turnover ratio. This happens when its current liabilities outweigh its current assets. Typically, a negative working capital turnover ratio indicates significant financial trouble.

Is the working capital turnover ratio the same as net sales to working capital?

Yes, the working capital turnover ratio is the same as net sales to working capital. 
 

How can a company acquire additional working capital?

A company can obtain more working capital by taking out a loan, opening a business line of credit, improving the accounts receivable process, selling unused assets, and more. Get creative if your company needs more working capital.

Conclusion

The working capital turnover ratio is a useful tool for business owners. As you navigate your business finances, understanding how quickly your business turns assets into sales is very important. If possible, make tweaks to constantly improve your business’s working capital turnover ratio.

Now that you understand the concept of working capital turnover ratio, you might be interested in acquiring additional working capital for your business. Visit our page about the best working capital loans to review and compare offers of the online lenders we recommend.

About the Author

Sarah Sharkey

Sarah Sharkey

Personal Finance Writer

Sarah Sharkey is a personal finance writer who enjoys helping people make better financial decisions. Sarah enjoys traveling, hiking and reading when she is not writing.

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