This is an advanced guide on how to calculate Sales to Working Capital ratio with thorough interpretation, example, and analysis. You will learn how to use its formula to evaluate a firm's liquidity.
The sales to working capital ratio is another useful liquidity ratio that defines the relationship between a company’s revenues, and the amount of cash it holds in the form of inventory and receivables.
Because it will show you the amount of invested cash a company requires to maintain a certain level of sales, as an investor you can use this liquidity ratio to analyze any changes in an organization’s use of its cash over a period of time.
In general, the amount of working capital available to a business for its daily operations is reduced when its sales to net working capital ratio is lower, since it means that more of the company’s money is tied up in receivables and inventory.
In an ideal world, a company’s sales to WC ratio should remain fairly constant regardless of its sales levels.[Click to continue]