Title: Working Capital Turnover Definition
Headings: Working Capital Turnover
Working Capital Turnover
What Is Working Capital Turnover?
Key Takeaways
Working Capital Turnover
The Formula for Working Capital Turnover Is
What Does Working Capital Turnover Tell You?
Working Capital Management
Special Considerations
Example of Working Capital Turnover

Content: Working Capital Management
Working capital management commonly involves monitoring cash flow, current assets, and current liabilities through ratio analysis of the key elements of operating expenses, including working capital turnover, the collection ratio, and inventory turnover ratio. Working capital management helps maintain the smooth operation of the net operating cycle, also known as the cash conversion cycle (CCC)—the minimum amount of time required to convert net current assets and liabilities into cash. When a company does not have enough working capital to cover its obligations, financial insolvency can result and lead to legal troubles, liquidation of assets, and potential bankruptcy. To manage how efficiently they use their working capital, companies use inventory management and keep close tabs on accounts receivables and accounts payable. Inventory turnover shows how many times a company has sold and replaced inventory during a period, and the receivable turnover ratio shows how effectively it extends credit and collects debts on that credit. Special Considerations
A high working capital turnover ratio shows a company is running smoothly and has limited need for additional funding. Money is coming in and flowing out regularly, giving the business flexibility to spend capital on expansion or inventory. A high ratio may also give the business a competitive edge over similar companies as a measure of profitability. However, an extremely high ratio might indicate that a business does not have enough capital to support its sales growth. Therefore, the company could become insolvent in the near future unless it raises additional capital to support that growth.