← Business Metric: Financial (all topics)
Working capital to sales
What it is
Net working capital expressed as a percentage of revenue - how much of every rupee of sales stays tied up in the operating cycle. It normalises the absolute figure so companies of different sizes are comparable
Rising input prices inflate it even when physical volumes and terms are unchanged
Impact on industries
- Makes working capital comparable across companies and periods, and turns it into a target management can be held to
- Growth at a constant ratio still consumes cash in absolute terms, which is why fast-growing firms with sound ratios run out of money
- It rises with commodity prices independently of performance, so the trend needs reading against input cost movement
- A structurally negative ratio signals real bargaining power over customers or suppliers rather than merely tight management