Capital turnover rate

The capital turnover rate is a business indicator that expresses the speed of the sales process in the goods and financial sectors of a company .

General

The total capital employed in a company is used to finance fixed and current assets and the sales process and must be paid interest. The total capital is made up of equity and debt . In the case of equity capital, a profit- related profit ( dividend ) is to be distributed to the shareholders ; in the case of outside capital, the creditors are paid a profit- independent loan interest . This interest must be earned in the sales process, so it also depends on how often a sales process takes place in the company. The more frequently a sales process occurs, the more likely it is that the interest on capital will be financed.

calculation

The total capital equivalent to the balance of total assets . If total capital and sales are the same, the capital turnover rate is 1:

{\ displaystyle {\ text {Total capital}} = \ {\ text {Sales revenues}}}

The total capital is then only implemented once in the turnover process. Since the total capital is made up of equity and debt , the total assets can also be used in the denominator of the formula . The average total capital, which is not mentioned in the annual financial statements, would be more precise . From the income statement are revenues (net sales) adopted as a counter:

{\ displaystyle {\ text {Capital turnover}} = {\ frac {\ text {Sales revenues}} {\ text {Total capital}}}}

It is important that the total capital employed in the company is used as intensively as possible. The larger the key figure, the more intensively and effectively the capital invested in the company is used and the better the return on investment . If the capital turnover increases, an increase in turnover could be made without additional capital investment. If the capital turnover rate is too low, this indicates poorly utilized capacities , high inventory levels and / or high levels of receivables . To improve the rate of capital turnover, it is possible to counteract with an increase in capacity utilization , a shortening of the storage period (time interval between warehouse entry and warehouse exit) and production time as well as an acceleration of incoming payments from customers. The reduction in stocks and receivables in turn leads to a lower total capital requirement.

The key figure of the capital turnover rate is strongly industry- dependent . The basic industries , capital-intensive companies ( telecommunications or transport ) and real estate companies have a low capital turnover rate, while there is a high rate in trade , service companies and consulting firms .

Relation to the return on investment

The capital turnover rate is a component of the first breakdown of the return on investment , which is made up of the return on sales and capital turnover rate :

${\ displaystyle ROI = {\ frac {Success} {Sales}} * {\ frac {Sales} {Capital Expenditure}}}$ .

Splitting the ROI

The return on investment (ROI) results as a factor from the profit margin and the capital turnover. The profit margin (profit / turnover) results from the entire operational activities. The efficient use of capital can be seen comprehensively in the capital turnover (turnover / capital employed). Changes in the return on capital (ROI) can therefore be attributed to changes in the return on sales and / or changes in the capital turnover rate. For this reason, a lower return on sales can be offset by a higher capital turnover rate and vice versa. An improvement in the rate of capital turnover leads to an increase in the return on investment with constant return on sales.

The following figure shows the capital turnover, sales margin and the resulting ROI for the various companies in the Dax in 2018. For orientation, an ROI of 8% (roughly corresponds to the average cost of capital of the company) is shown. For companies with a low sales margin, the cost of capital can only be covered by a high turnover of capital. If the ROI is above the cost of capital of 8%, this indicates competitive advantages in production and / or logistics. Adidas falls into this category. In contrast, above-average returns on sales indicate successful activities in the sales market. SAP and Bayer can be mentioned here. If both things come together, the companies can achieve a particularly high ROI (here Covestro). It is generally noticeable that the large German companies are generally unable to cover their capital costs .

literature

Andreas Pawlas: Determination and statement problems of capital turnover rates . University, Hamburg 1979 (dissertation)

Individual evidence

↑ Helmut Geyer, Praxiswissen BWL , 2007, p. 433.
↑ Helmut Geyer, Praxiswissen BWL , 2007, p. 441.
↑ Horst-Tilo Beyer, Finanzlexikon , 1971, p. 202.
↑ Peter Seppelfricke : company analyzes . Schäffer-Poeschel, 2019, ISBN 978-3-7910-4435-4 ( schaeffer-poeschel.de [accessed January 7, 2020]).

↑ Peter Poslunschny, The most important key figures , 2007, o. P.

[1] Helmut Geyer, Praxiswissen BWL , 2007, p. 433.

[2] Helmut Geyer, Praxiswissen BWL , 2007, p. 441.

[3] Horst-Tilo Beyer, Finanzlexikon , 1971, p. 202.

[4] Peter Seppelfricke : company analyzes . Schäffer-Poeschel, 2019, ISBN 978-3-7910-4435-4 ( schaeffer-poeschel.de [accessed January 7, 2020]).

[5] Peter Poslunschny, The most important key figures , 2007, o. P.