Working Capital to Sales Ratio

Working Capital to Sales Ratio is the ratio of net working capital (current assets minus current liabilities) to sales.

Formula:
Working Capital to Sales Ratio = (Net Working Capital / Sales) * 100%
Or = ((Current Assets – Current Liabilities) / Sales) * 100%

Example:
The following information relates to JKL Ltd:
Stock $30,000
Debtors $20,000
Bank $50,000
Cash $10,000
Creditors $25,000
Accrued expenses $5,000
Notes payable $2,000
Sales $200,000

Then,
Total currents assets = Stock + Debtors + Bank + Cash = 30,000 + 20,000 + 50,000 + 10,000 = $110,000
Total current liabilities = Creditors + Accrued expenses + Notes payable = 25,000 + 5,000 + 2,000 = $32,000
Net Working Capital = Currents assets - Current liabilities = 110,000 - 32,000 = $78,000
Working Capital to Sales Ratio = (78,000 / 200,000) * 100% = 39%

* Next: How to Calculate Working Capital
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