Revenue divided by working capital. Higher turnover means less capital needed per dollar of revenue. Some companies like Amazon operate with negative working capital, which is actually a sign of business model strength.
Formula
Description
Measures how efficiently working capital (current assets minus current liabilities) generates revenue. Higher turnover means the company needs less working capital per dollar of revenue, which frees up cash for other purposes.
Interpretation
Above 4 is generally efficient. Very high working capital turnover may indicate the company is operating with minimal cushion. Negative working capital turnover (from negative working capital) can actually be a sign of strength in certain business models.
Related Growth Indicators
Overhead costs (selling, general, and administrative expenses) as a percentage of revenue. Below 30% is generally efficient. Buffett notes that companies with consistently low SGA ratios tend to have durable competitive advantages.
Research and development spending as a percentage of revenue. The ideal range depends on industry: tech companies often spend 15-25%. Too little may mean underinvestment in the future; too much may burden profitability.
Total operating expenses divided by revenue. Below 0.8 indicates a healthy 20%+ operating margin. Above 1.0 means the company isn't covering operating costs with revenue. A declining ratio signals improving efficiency.
Total revenue divided by employee headcount. Measures workforce productivity and business scalability. Technology companies with platform models tend to lead. Above $300,000 is generally strong.
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