Working Capital Turnover Ratio

What is the working capital turnover ratio?

Working capital turnover ratio is the ratio between the net revenue or turnover and the working capital of a business. The ratio indicates how effectively a company uses the available funds for streamlined production of goods or services.

Working capital of a business is the difference in values of its current assets and its current liabilities. If the annual turnover of a business is Rs. 20 Lakh and average working capital Rs. 4 Lakh, then the turnover ratio is 5 (20,00,000/4,00,000).

A positive turnover ratio means that a business is using its working capital justifiably. It also means that the business is effectively using its current assets to manage production. Any sudden rise in sales or demand for products may not create shortfalls in inventory with a high turnover ratio.

On the other hand, a low capital turnover ratio means that the company is investing more in inventory. It may also mean that the organisation has too many outstanding liabilities with its suppliers. Such a low working capital turnover ratio can lead to inventory shortage or bad debts.

Accumulation of such debts can hamper the operations of a business considerably. A Working Capital Loan from Bajaj Finserv offers up to Rs. 20 lakh can help address such financial constraints to revive optimised business operations. The loan is available in a flexi format, which is the perfect solution for working capital management. To suit your dynamic working capital needs, you can borrow as and when you need from a pre-sanctioned pool of funds and repay EMIs as and when your firm has excess cash, at no extra cost. To add to your convenience, interest is charged only on the sum you borrow (and not on the full loan amount) and you have the option of paying only interest as EMIs (with the principal repayable at the end of the tenor).