ROIC, or Return On Invested Capital, on the other hand is a very useful way to measure how well a business is doing at making more money. The best businesses can grow without needing to spend too much money. A lesser-known ratio called the Sales to Working Capital Ratio can be used to figure out how well a company puts money back into itself. The Sales to Working Capital Ratio is an efficiency ratio that is also called the Working Capital Turnover Ratio or the Sales to Capital Ratio.
What is the Sales to Working Capital Ratio?
The Sales to Working Capital Ratio tells us how quickly a company can turn one dollar of capital into one dollar of sales.
To keep sales going, it usually takes a certain amount of money. For accounts payable to be paid off, there must be an investment in accounts receivable and inventory. So, even if a business’s sales go up or down, there is usually a ratio of working capital to sales that stays pretty steady.