FREE online courses on Financial Ratio Analysis - Efficiency Ratios -
Capital Turnover
One final turnover ratio that we can calculate is Capital
Turnover. Capital Turnover measures our ability to turn capital over into sales.
Remember, we have two sources of capital: Debt and Equity. Capital Turnover is
calculated as follows:
Net Sales / Interest Bearing Debt + Shareholders Equity
EXAMPLE - Net Sales are $ 460,000, we have $ 50,000 in Debt
and $ 200,000 of Equity. Capital Turnover is $ 460,000 / ($ 50,000 + $ 200,000)
= 1.84. For each $ 1.00 of capital invested (both debt and equity), we are able
to generate $ 1.84 in sales.
