Capital Turnover

Capital turnover is calculated by the annual sales of a company divided by the average equity of the stockholders. This measure is mainly used for finding the rate of return on common equity. By taking a look at the capital turnover, it can be assessed how a company makes use of its stockholders’ equity for the purpose of generating revenue. A high ratio indicates a company’s efficiency in utilizing its capital which is also termed as equity turnover. It means that the company is being able to generate a lot of sales as compared to the funds it is using for operating the sales. The capital turnover ratio also provides some insight into the relationship between money that is being used for funding operations and the sales that is generated from the operations. For example, if the current assets of a company are $ 20 million and current liabilities are $10 million, then the company has a working capital of $ 10million.

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Edited and Updated 31st May 2014

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