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|
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|
|Net current assets (liabilities)||93,180||-2,660|
|Working Capital Turnover Ratio for the Carphone Warehouse|
|31 March 2001||
|25 March 2000||
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.