Working Capital Turnover
Candlefocus EditorHaving a higher working capital turnover ratio is a sign of efficiency, as it indicates that a company is able to generate a larger amount of sales for every dollar of working capital it puts to use. This can be beneficial for the business’ bottom line since it implies that the company is able to achieve a greater return on investment.
However, when a company’s working capital turnover is too high, this could be an indication that a company needs to raise additional capital to support future growth. This could mean taking on debt or equity funding, or reducing the company’s working capital through cost-cutting measures. It can be an indication that a business is not managing its working capital efficiently and may struggle to keep up with customer demand and grow in the future without additional capital.
Working capital turnover is an important metric for business owners to understand and track. It can provide insight into how effectively a business is using its working capital to generate sales and whether additional capital is needed to ensure that the business is able to continue to grow. Business owners should track their working capital turnover over time to ensure that their businesses remain efficient and that they are able to prepare for potential capital needs.