--- title: Sales to Working Capital Ratio | Formula, Example, Analysis, Calculator description: Sales to working capital ratio is a metric used to determine how efficiently the company is utilizing its current assets. Click to know more. --- [![Carbon collective](https://www.carboncollectiveinvesting.com/hubfs/raw_assets/public/CarbonCollective_August2021%20copy/images/carbon-collective-green-investing-logo-white.4f6047d4.svg "Carbon collective")](https://www.carboncollectiveinvesting.com/) - About - Employers - [Sustainable 401(k)](https://www.carboncollectiveinvesting.com/401k) - [401(k) Comparison Tool](https://www.carboncollectiveinvesting.com/401k/plan-comparison-tool) - Individuals - [FAQ](https://www.carboncollective.co/en/knowledge/faqs) - [ETF](https://www.carboncollectivefunds.com/) - Learn - [Sustainable Investing](https://www.carboncollective.co/sustainable-investing) - [Investing Basics](https://www.carboncollective.co/sustainable-investing/investing-basics) - [Blog](https://blog.carboncollective.co/) - [Tools](https://tools.carboncollective.co/calculator/) - Log in - [Carbon Collective](https://app.carboncollective.co) - [Altruist](https://app.altruist.com) [Talk to a human](https://ask.carboncollective.co/f4o5dylkg) [Sign up](https://app.carboncollective.co/sign-up) [Log In](http://app.carboncollective.co/) [![Carbon collective](https://www.carboncollectiveinvesting.com/hubfs/raw_assets/public/CarbonCollective_August2021%20copy/images/carbon-collective-green-investing-logo.53b28bee.svg "Carbon collective")](https://www.carboncollectiveinvesting.com/) - About - Employers - [Sustainable 401(k)](https://www.carboncollectiveinvesting.com/401k) - [401(k) Comparison Tool](https://www.carboncollectiveinvesting.com/401k/plan-comparison-tool) - Individuals - [FAQ](https://www.carboncollective.co/en/knowledge/faqs) - [ETF](https://www.carboncollectivefunds.com/) - Learn - [Sustainable Investing](https://www.carboncollective.co/sustainable-investing) - [Investing Basics](https://www.carboncollective.co/sustainable-investing/investing-basics) - [Blog](https://blog.carboncollective.co/) - [Tools](https://tools.carboncollective.co/calculator/) - Log in - [Carbon Collective](https://app.carboncollective.co) - [Altruist](https://app.altruist.com) [Talk to a human](https://ask.carboncollective.co/f4o5dylkg) [Sign up](https://app.carboncollective.co/sign-up) [Log In](http://app.carboncollective.co/) **[Home](https://www.carboncollectiveinvesting.com/) > [Sustainable Investing](https://www.carboncollectiveinvesting.com/sustainable-investing) >** Sales to Working Capital Ratio # Sales to Working Capital Ratio ![](https://www.carboncollectiveinvesting.com/hubfs/Brooke%20Tomasetti.png) Written by Brooke Tomasetti | Reviewed by [Subject Matter Experts](https://www.carboncollectiveinvesting.com/subject-matter-experts) Updated on October 1, 2024 Fact Checked Why Trust Carbon Collective? ### Table of Contents Sales to working capital ratio is a liquidity and activity ratio that shows the amount of sales revenue generated by investing one dollar of working capital. Assets, also called working capital, represent items closely tied to sales, and each item will directly affect the results.  Therefore, this ratio measures how well the company is utilizing its working capital to generate revenue. Investors are able to understand how much cash is needed to support a given level of sales. [![Studying for work or school but haven't 100% set up your personal finances? Sign up to get the Sustainable Investing guide delivered to your inbox in bite-sized pieces.](https://hubspot-no-cache-na2-prod.s3.amazonaws.com/cta/default/20345524/59fd153f-397a-4680-8b36-9ded7575e6dc.png)](https://hubspot-cta-redirect-na2-prod.s3.amazonaws.com/cta/redirect/20345524/59fd153f-397a-4680-8b36-9ded7575e6dc) In day–to–day operations, there are short term debts and bills, such as salaries, that need to be met for the business to produce. Therefore investors typically track this ratio over time since it can provide insights into the company’s use of cash over some time and possibly need to raise additional funds to grow sales. A high ratio indicates a company’s efficiency. How well are they utilizing current assets and liabilities to support growth in sales. A low sales to working capital ratio implies that the company’s working capital is not adequate enough to generate sales. Therefore, the company is excessively using accounts receivables and inventories to generate sales.  This might result in poor quality debts and obsolete inventory. In an ideal world, a company’s sales to working capital ratio should remain fairly constant regardless of its sales levels. ## Sales to Working Capital Ratio Formula ![](https://www.carboncollectiveinvesting.com/hubfs/image-png-Apr-23-2022-11-49-05-02-AM.png) The information for these variables can be found on a company’s [financial statements](https://www.carboncollectiveinvesting.com/sustainable-investing/basic-financial-statements/). To calculate net sales, simply deduct sales returned from the annual gross sales.  ![](https://www.carboncollectiveinvesting.com/hubfs/image-png-Apr-23-2022-11-49-43-06-AM.png) This is referred to as annualized net sales because we’ve deducted sales which were returned by customers to eliminate counting items in the inventory twice. The average working capital is calculated as current assets minus current liabilities. You can find this by summing [accounts receivable](https://www.carboncollectiveinvesting.com/sustainable-investing/accounts-receivable/) and [inventories](https://www.carboncollectiveinvesting.com/sustainable-investing/inventory/) and deducting accounts payable. ![](https://www.carboncollectiveinvesting.com/hubfs/image-png-Apr-23-2022-11-50-38-90-AM.png) ## Sales to Working Capital Ratio Example After recording a series of poor sales performances, the credit department at Donald’s company decided to use another company in their industry as a benchmark. The team realized that their company could tighten its credit policy without significantly hurting sales.  As a result, they adjusted inventory levels by eliminating slow-moving products. After one year, the company achieved the results recorded in the table below. Use the information provided to find the change in the company’s sales to working capital ratio over the course of the year. ![](https://www.carboncollectiveinvesting.com/hubfs/image-png-Apr-26-2022-07-52-59-12-AM.png) ### Quarter 1 Now let’s break it down and identify the values of different variables in the problem. To calculate net sales subtract returns ($400) from gross sales ($25,400). For working capital, add the accounts receivable ($8,333) and inventory ($12,500), then subtract accounts payable ($1,042).  - Net sales= $25,000 - Working capital = $19,791 ![](https://www.carboncollectiveinvesting.com/hubfs/image-png-Apr-23-2022-11-51-25-21-AM.png) The quarter 1 ratio is 1.26.  ### Quarter 2 Using the same method as quarter one, we can calculate net sales and working capital again for quarter 2.  - Net sales = $23,500 - Working Capital =$12,925 ![](https://www.carboncollectiveinvesting.com/hubfs/image-png-Apr-23-2022-11-51-57-70-AM.png) The quarter 2 ratio is 1.82.  ### Quarter 3 - Net sales = $24,675 - Working Capital =$12,029 ![](https://www.carboncollectiveinvesting.com/hubfs/image-png-Apr-23-2022-11-52-24-27-AM.png) The quarter 3 ratio is 2.05.  ### Quarter 4 - Net sales = $25,909 - Working Capital = $11,011 ![](https://www.carboncollectiveinvesting.com/hubfs/image-png-Apr-23-2022-11-52-52-91-AM.png) The quarter 4 ratio is 2.35.  ### Overview Over the four quarters, the sales to working capital ratio increased from 1.26 to 2.36. This means benchmarking helped the company to adapt its facilities to more profitable use of the working capital. ## Sales to Working Capital Ratio Analysis The sales to working capital ratio is an asset utilization measure. It allows investors to understand how well the company is using its assets to support a certain level of sales. Measured results over several periods because one-time ratios will only reveal how well the business is performing for that single period. Watching the trend helps you know if the company needs additional funds to grow their sales. Usually, a certain amount of money must be invested in a company to support its operations. This amount should always be maintained at a certain level, regardless of the change in sales level. When the company is undercapitalized, they might tighten up customer credit or decrease on-hand inventory levels to reduce the amount of cash invested in receivables and inventory. However, this can result in reduced sales when the company’s payment terms become unattractive to clients. Or customers might turn to better-stocked competitors to fulfill their orders more quickly. A high ratio indicates that the working capital is used more times per year, which means a more frequent flow of capital. Low ratios imply that the company’s working capital is not adequate for generating sales. This results in excessive use of accounts receivable and inventories to generate sales, a factor that might cause bad quality debts and obsolete inventory. The most attractive ratios are ones that remain constant over time, regardless of sales.  ## Sales to Working Capital Ratio Conclusion - Sales to working capital ratio is a metric used to determine how efficiently the company is utilizing its current assets and liabilities to support a certain level of sales.  - A high result is an indicator of a company’s efficiency in utilizing current assets and liabilities to support growth in sales. - A low sales to working capital ratio implies that the company’s working capital is not adequate to generate sales resulting in excessive use of accounts receivable and inventories to generate sales. - The effectiveness of this ratio is best viewed over several periods. - This formula requires two variables: net sales and average working capital. ## Sales to Working Capital Ratio Calculator You can use the sales to working capital ratio calculator below to quickly calculate the number of net sales a company can support by its current assets and liabilities by entering the required numbers.   Net Sales Accounts Receivable Inventory Accounts Payable Sales to Working Capital Ratio   ## FAQs ### 1. What is the sales to working capital ratio? The sale to working capital ratio is a metric used to determine how well a company is utilizing its current assets and liabilities. This helps investors understand how well the company is using its assets to support the level of growth in sales. ### 2. How do you calculate sales to working capital ratio? The sales to working capital ratio are calculated by: Sales to Working Capital = Net Sales ​/ Average Working Capital ### 3. What is a good sales working capital ratio? A good sales to working capital ratio should be one that is used as a benchmark for the company. By using this metric, investors can see how well the company is utilizing its assets and liabilities over time. In general, a working capital ratio of less than one indicates the company has a negative current ratio, meaning that it must rely on its long-term assets and equity to finance the working capital. ### 4. How do you interpret a sales working capital ratio? An increase in the sales to working capital ratio indicates an improvement in the use of assets to support growth in sales. A decline could mean the opposite. ### 5. What is an example of a sales to the working capital ratio? For example, Let’s assume Company A has $100 of net sales and $50 of average working capital for the year. The calculation is: Sales to Working Capital = $100 / $50 = 2 This means that Company A has utilized its assets twice as much as it needs to support Company A’s sales. ### Related Topics - [Sustainable 401(k) Plan](https://www.carboncollective.co/401k) - [Sustainable Investing](https://www.carboncollective.co/sustainable-investing/) - [Investing Basics](https://www.carboncollective.co/sustainable-investing/investing-basics) - [Retirement Glossary](https://www.carboncollective.co/sustainable-investing/retirement-planning-glossary) - [Best Retirement Plans](https://www.carboncollective.co/sustainable-investing/the-10-best-retirement-plans) - [Wealth Manager Vs Financial Advisor](https://www.carboncollective.co/sustainable-investing/wealth-manager-vs.-financial-advisor) ![Attend Our Next Webinar](https://www.carboncollectiveinvesting.com/hubfs/carbon-collective-green-investing-icon-webinar.12af7b6e.svg) ### Attend Our Next Webinar Join our next Sustainable Investing 101 webinar, get our favorite DIY options, and walk through how we build our portfolios. [Watch Now](https://www.carboncollective.co/sustainable-investing-webinar-green-retirement-month) ![Get Our Newsletter](https://www.carboncollectiveinvesting.com/hubfs/carbon-collective-green-investing-icon-demo.6ed28722.svg) ### Get Our Newsletter Go a level deeper with us and investigate the potential impacts of climate change on investments like your retirement account. Join Newsletter ![close-typeform](data:image/gif;base64,R0lGODlhEQARAIAAAODn7P///yH5BAEHAAEALAAAAAARABEAAAIqBIKpab3v3EMyVHWtWZluf0za0XFNKDJfCq5i5JpomdUxqKLQVmInqyoAADs=) ![Talk To A Human](https://www.carboncollectiveinvesting.com/hubfs/carbon-collective-green-investing-icon-chat.49d48c5b.svg) ### Talk To A Human Joining a new investment service can be intimidating. We’re here for you. Click below to email us a question or book a quick call. [Ask a Question](https://ask.carboncollective.co/f70pooobq) Topics ## Sustainable Investing Topics View our list of some topics below. See More - Portfolios - [Performance](https://www.carboncollectiveinvesting.com/returns) - About - [Sustainable 401(k)](https://www.carboncollectiveinvesting.com/401k) - Learn - [FAQ](https://www.carboncollective.co/en/knowledge/faqs) - [Sustainable Investing](https://www.carboncollective.co/sustainable-investing) - [Investing Basics](https://www.carboncollective.co/sustainable-investing/investing-basics) - Contact - [Contact us](mailto:hello@carboncollective.co) - [Legal](https://www.carboncollective.co/legal) - [Privacy Policy](https://www.carboncollectiveinvesting.com/hubfs/2022-11%20Carbon%20Collective%20Privacy%20Policy.pdf) - [Back to top](https://www.carboncollectiveinvesting.com/sustainable-investing/sales-to-working-capital-ratio#top-of-page) DISCLAIMERS: Advisory services provided by Carbon Collective Investment LLC (“Carbon Collective"), an SEC-registered investment adviser. A copy of Carbon Collective's current written disclosure statement discussing Carbon Collective’s business operations, services, and fees is available at the SEC’s investment adviser public information website – [www.adviserinfo.sec.gov](https://adviserinfo.sec.gov/firm/summary/310129) or [our legal documents here](https://blog.carboncollective.co/legal-documents/). The articles and research support materials available on this site are educational and are not intended to be investment or tax advice. Carbon Collective does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Carbon Collective’s web site or incorporated herein, and takes no responsibility therefor. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Investments in securities: Not FDIC Insured • No Bank Guarantee • May Lose Value. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Before investing, consider your investment objectives and Carbon Collective's charges and expenses. Carbon Collective's internet-based advisory services are designed to assist clients in achieving discrete financial goals. They are not intended to provide comprehensive tax advice or financial planning with respect to every aspect of a client's financial situation and do not incorporate specific investments that clients hold elsewhere. For more details, see our Form CRS, Form ADV Part 2 and other disclosures. Past performance does not guarantee future results, and the likelihood of investment outcomes are hypothetical in nature. Not an offer, solicitation of an offer, or advice to buy or sell securities in jurisdictions where Carbon Collective is not registered. © 2026 Carbon Collective Corporation. All rights reserved. × #### Fact Checked Carbon Collective partners with financial and climate experts to ensure the accuracy of our content. Our team of reviewers are established professionals with years of experience in areas of personal finance and climate. They have contributed to top tier financial publications, such as Reuters, Axios, Ag Funder News, Bloomberg, Marketwatch, Yahoo! Finance, and many others. This team of experts helps Carbon Collective maintain the highest level of accuracy and professionalism possible. × #### Why Trust Carbon Collective Carbon Collective is the first online investment advisor 100% focused on solving climate change. We believe that sustainable investing is not just an important climate solution, but a smart way to invest. We follow ethical journalism practices, which includes presenting unbiased information and citing reliable, attributed resources. Much of our research comes from leading organizations in the climate space, such as Project Drawdown and the International Energy Agency (IEA). Our goal is to deliver the most understandable and comprehensive explanations of climate and finance topics. Our writing and editorial staff are a team of experts holding advanced financial designations and have written for most major financial media publications. Our work has been directly cited by organizations including MarketWatch, Bloomberg, Axios, TechCrunch, Forbes, NerdWallet, GreenBiz, Reuters, and many others. We strive to empower readers with the most factual and reliable climate finance information possible to help them make informed decisions. } ```json { "@context" : "https://schema.org", "@type" : "Organization", "alternateName" : "Carbon Collective", "contactPoint" : { "@type" : "ContactPoint", "areaServed" : "US", "availableLanguage" : "en", "contactType" : "customer service", "telephone" : "(650) 868-2697" }, "logo" : "https://www.carboncollective.co/hubfs/CarbonCollectiveLogo.png", "name" : "Carbon Collective Investing LLC", "sameAs" : [ "https://www.facebook.com/carboncollectiveinvesting/", "https://twitter.com/carbncollective", "https://www.instagram.com/carbon.collective/", "https://www.youtube.com/channel/UC769Y-F-L_B37kyQfdpvyXA", "https://www.linkedin.com/company/carbon-collective/", "https://www.crunchbase.com/organization/carbon-collective", "https://adviserinfo.sec.gov/firm/summary/310129", "https://www.wikidata.org/wiki/Q110243690" ], "url" : "https://www.carboncollective.co/" } ``` ```json { "@context": "https://schema.org", "@type": "FAQPage", "mainEntity": [{ "@type": "Question", "name": "What is the sales to working capital ratio?", "acceptedAnswer": { "@type": "Answer", "text": "The sale to working capital ratio is a metric used to determine how well a company is utilizing its current assets and liabilities. This helps investors understand how well the company is using its assets to support the level of growth in sales." } },{ "@type": "Question", "name": "How do you calculate sales to working capital ratio?", "acceptedAnswer": { "@type": "Answer", "text": "The sales to working capital ratio are calculated by: Sales to Working Capital = Net Sales ​/ Average Working Capital" } },{ "@type": "Question", "name": "What is a good sales working capital ratio?", "acceptedAnswer": { "@type": "Answer", "text": "A good sales to working capital ratio should be one that is used as a benchmark for the company. By using this metric, investors can see how well the company is utilizing its assets and liabilities over time. In general, a working capital ratio of less than one indicates the company has a negative current ratio, meaning that it must rely on its long-term assets and equity to finance the working capital." } },{ "@type": "Question", "name": "How do you interpret a sales working capital ratio?", "acceptedAnswer": { "@type": "Answer", "text": "An increase in the sales to working capital ratio indicates an improvement in the use of assets to support growth in sales. A decline could mean the opposite." } },{ "@type": "Question", "name": "What is an example of a sales to the working capital ratio?", "acceptedAnswer": { "@type": "Answer", "text": "For example, Let’s assume Company A has $100 of net sales and $50 of average working capital for the year. The calculation is: Sales to Working Capital = $100 / $50 = 2 This means that Company A has utilized its assets twice as much as it needs to support Company A’s sales." } }] } ``` ```json { "@context" : "https://schema.org", "@type" : "BlogPosting", "author" : { "@type" : "Person", "name" : "https://20345524.fs1.hubspotusercontent-na1.net/hubfs/20345524/Brooke%20Tomasetti.png", "url" : "https://www.carboncollectiveinvesting.com/sustainable-investing/author/brooke-tomasetti" }, "dateModified" : "2024-10-01", "datePublished" : "2021-03-24", "description" : "Sales to working capital ratio is a metric used to determine how efficiently the company is utilizing its current assets. Click to know more.", "headline" : "Sales to Working Capital Ratio | Formula, Example, Analysis, Calculator", "image" : "", "mainEntityOfPage" : { "@id" : "https://www.carboncollectiveinvesting.com/sustainable-investing/sales-to-working-capital-ratio", "@type" : "WebPage" }, "publisher" : { "@type" : "Organization", "logo" : { "@type" : "ImageObject", "url" : "https://www.carboncollective.co/hubfs/CarbonCollectiveLogo.png" }, "name" : "Carbon Collective" } } ```