Sales to Current Assets Ratio

Definition: Sales to Current Assets Ratio is used to measure how well a company is making use of its assets in generating sales revenue. A high ratio may indicate deficient working capital.

Formula:
Sales to Current Assets = Net Sales / Total Current Assets
(Note: Current assets include Cash, Bank, Marketable Securities, Accounts Receivable, Inventories, Prepaid Expenses)

Example:
Euro Company has the following data:
Total sales $20,000
Sales returns $2,000
Stock $10,000
Debtors $3,000
Bank $5,000
Cash in hand $1,000
Prepaid expenses $500
Marketable securities $1,500
Accrued expenses $200
Creditors $4,800

Then,
Net sales = Sales - Sales returns = 20,000 - 2,000 = $18,000
Total Current Assets = 10,000 + 3,000 + 5,000 + 1,000 + 500 + 1,500 = $21,000
Sales to Current Assets Ratio = 18,000 / 21,000 = 0.86

* Next: Net Working Capital to Total Assets Ratio