One of the important sales ratios, Capital turnover ratio shows the relationship between net sales and capital employed. It is used to measure the efficiency of management to generate revenue from companies’ capital.
The higher degree of this ratio is better for a company in sense that capital is being used in effective way.
Formula for capital turnover ratio:
Capital turnover ratio = Net sales/ Capital employed
Net sales = Gross sales – sales return
Capital employed = Share capital + reserves + long term borrowings