Working Capital Turnover
The final ratio in this section is the working capital turnover ratio - the relationship between turnover and working capital.
The working capital turnover ratio is straightforward and here it is!
| Working Capital Turnover | = | Sales |
| Working Capital |
What this ratio tries to highlight is how effectively working capital is being used in terms of the turnover it can help to generate: no ideal values here but the higher the better, surely. Working with the Carphone Warehouse, we have:
| Carphone Warehouse | 31 March 2001 | 25 March 2000 |
|---|---|---|
| £'000 | £'000 | |
| Turnover | 1,110,678 | 697,720 |
| Net current assets (liabilities) | 93,180 | -2,660 |
| Working Capital Turnover Ratio for the Carphone Warehouse | ||
|---|---|---|
| 31 March 2001 |
1,110,678
93,180 |
11.92 times |
| 25 March 2000 |
697,720
-2,660 |
-262.30 times |
Oops, then much better! In 2000, the result of the working capital turnover ratio was strange because year-end working capital (net current liabilities in this case) was negative - it's difficult to interpret such a ratio. In 2001, though, it had turned this situation round and returned a value of 11.92 times.
The best way to understand what this ratio means is to calculate it a few times. Let's start with Vodafone and take it from there.
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