Question

pick the right answer 1-4

If the working capital turnover of JEP Corp. is 7.0., what does this accounting data suggest?

1.For every $7.00 ABC Corp. invested, the company realizes sales of $1.00.

2.For every dollar ABC Corp. invested, the company realizes $7.00 of sales.

3.For every dollar ABC Corp. invested, the company realizes $7.00 in loss.

4.For every $7.00 ABC Corp. invested, the company incurs a cost of $1.00.

Answer 1

Answer: Optop 2. For every dollar ABC Corp. invested, the company realizes $7.00 of sales.

Meaning and reading of working capital turnover ratio:

Working capital turnover ratio calculated as follows:

Working capital turnover ratio = Sales / Working capital

Where, Working capital = Current assets - Current liabilities

Higher the working capital ratio is considered as best.

Woking capital turnover ratio says how effectively entity is using its working capital to boost the sales.

We will understand it by taking one example,

Suppose working capital is $ 1 & Sales is $ 7

Working capital turnover ratio = Sales / Working capital

= $ 7 / $ 1

= 7.00 times

It denotes that using working capital of $ 1 comapny is getting sales of $ 7.

Therefore, For every dollar ABC Corp. invested, the company realizes $7.00 of sales.