Question

what does a ratio of 7.779 (sales/Net working capital) (2434703 / (838485 - 525460) tell you...

what does a ratio of 7.779 (sales/Net working capital) (2434703 / (838485 - 525460) tell you about a company Why this ratio might be of interest to investors or creditors: please explain how a ratio 7.779 is can be useful/notuseful for investors and creditors

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Answer #1

First of all Working capital ratio of 7.779 means that company is using Working capital 7.779 times per year.

Working capital ratio is an inceptor of how efficiently a company is using working capital and is the sales revenue sufficient to use working capital or say company is not over capitalized.

Investors and creditors analyses that how much of cash is needed to generate a particular level of sales revenue.

When company needs to increase its sales then it requires more funds , investors keep an eye on this ratio to see whether the amount they are investing is worth investment or not.

Finally Creditors use this ratio to see the liquidity of the company. They are worried that if their payments will be made in time of not.

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