Financial Metrics - Working Capital Ratios

Sales can solve a lot of business problems.  Sustainable business are built upon sound policies concerning current assets and supported by sufficient working capital.  The following ratios can be used to evaluate a business's net working capital:

• Working Capital Turnover
• Current Debt to Net Worth
• Funded Debt to Net Working Capital

Working Capital Turnover - helps to ascertain whether your business is top-heavy in fixed or slow assets.  A high ratio may indicate that your business requires additional funds to support its financial structure, top heavy with fixed investments.

Net Sales / Net Working Capital = Working Capital Turnover Ratio

Current Debt to Net Worth - measures the proportion of funds that current creditors contribute to your operations.

Current Liabilities / Tangible Net Worth = Current Debt to Net Worth Ratio

Funded Debt to Net Working Capital - long term debt should not exceed net working capital. 

Long-Term Debt / Net Working Capital = Funded Debt to net Working Capital Ratio