What is the turnover of working capital?

working capital turnover is a formula that is used to assess how well the business uses working capital, which is currently available for business. Measurement of this type can help the company avoid unnecessary expenditures and at the same time increase business potential to avert resources to projects that show the promise that the company will somehow strengthen. The assessment of this nature occurs regularly, which allows the company to make modifications of its expenditure and financing, if necessary.

To understand how working capital turns, it is necessary to define what is meant by working capital. This is simply the current assets of the minus the current commitment that the company transmits. Assuming that assets are more than obligations, the difference between these two numbers serves as a source for the operation of business, including paying for the purchase of supplies and materials to maintain Going's business.

The focus of working capital turnover is to find out how efficiently the company uses capital to start and finance projects, which are expected to lead to other sales revenues. The turnover calculation helps to provide a certain idea of ​​whether the project or the process actually generates enough income to justify the continuation of this process or project. The high turnover of working capital means that activities create income that is beyond the scope of expenditure, while the fluctuation with flat working capital means that while all expenses are covered, there is little or nothing in the way of additional income. In case of a negative turnover of working capital, activities do not mean enough income to cover the expenditure and should be either redesigned in the hope that they will remedy or leave the problem completely.

Basic analysis of this type is necessary, it is a business to become self -sufficient and publish any type of profit. By assessing the current status of working capital turnover, which applies to the last completed financial period, it is possible to determine whether the current working capital management procedures are effective and bring the desired results or whether measures before the stability of the company should be taken. The result of the calculation of this turnover rate is sometimes useful in terms of comparing business activities with the way competitors operate, which can lead to some improvements that increase the profitability of business in the upcoming financial periods.