What does the Sales to Working Capital ratio measure?

• A. Net Income / Net Sales
• B. Net Sales / Working Capital
• C. Cost of Goods Sold / Average Inventory
• D. Net Sales / Current Assets

Answer: (B)

Sales to Working Capital shows how efficiently a company uses its working capital to generate sales. It is calculated as Net Sales divided by Working Capital (where Working Capital = current assets minus current liabilities). A higher ratio means more sales are produced per dollar of working capital, indicating tighter, more productive use of short-term resources. This metric helps you compare operating efficiency across periods or between firms, keeping in mind that industry norms matter.

The other options measure different things: Net Income divided by Net Sales is profit margin; Cost of Goods Sold divided by Average Inventory is inventory turnover; Net Sales divided by Current Assets is a form of asset turnover but ignores the financing component of working capital.