Calculate net working assets to revenue
Measure net operating working assets as a percentage of revenue using the syllabus definition.
Section 3.5 · Analysis and communication of accounting information
Exam scope and assessment notes
Cambridge International AS & A Level Accounting 9706, 2026–2028 syllabus, Version 2. Use the ratio formulae in the syllabus appendix exactly; Cambridge states these are the only formulae accepted. Use year-end balances where appropriate unless the question specifies averages, and round to the requested number of decimal places. Practice is self-checked, not an official Cambridge grade. Full timed Papers 1–4 and human subject-teacher review remain outstanding.
Before you begin
- Use the AS Topic 1.6 ratio, financial-statement and stakeholder skills. These lessons add only the A Level ratios and interpretation required by Topic 3.5.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
If net working assets are $90,000 and revenue is $600,000, which operation gives the percentage?
What you will learn
- Calculate net working assets from inventory, receivables and payables
- Calculate net working assets to revenue
- Interpret the ratio with operational context
Use the appendix definition
Net working assets = inventories + trade receivables − trade payables. Net working assets to revenue (sales) (%) = net working assets ÷ revenue (sales) × 100. Do not substitute total current assets or all current liabilities for the three specified items.
The ratio expresses net working assets as a percentage of sales. For example, 12% means the defined net working assets equal 12 cents for each dollar of revenue over the period; it is not a profit margin or liquidity ratio.
Interpret the amount of working capital used
A higher percentage can mean more funds are tied up in inventory and receivables after trade payables, or that sales are lower relative to those balances. A lower percentage may reflect more efficient working-capital use, but can also result from very low stock, slow suppliers or unusually high sales.
Compare trends and operational context. Identify which component changed and whether the change supports reliable operations. Do not treat a lower ratio as a target in isolation.
Pause and explain
A decrease in this ratio proves what?
Worked example
Inventory is $40,000, trade receivables $60,000, trade payables $25,000 and revenue $600,000. Calculate net working assets to revenue.
Show the worked solution
- Net working assets = $40,000 + $60,000 − $25,000 = $75,000.
- $75,000 ÷ $600,000 × 100 = 12.5%.
- State that net working assets are 12.5% of revenue.
Answer Net working assets to revenue is 12.5% using the syllabus definition.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
Inventory is $32,000, receivables $48,000, payables $20,000 and revenue $400,000. Calculate net working assets and the ratio.
Give me a hint
Apply the three-item definition first.
Compare my reasoning
- Net working assets = $32,000 + $48,000 − $20,000 = $60,000.
- $60,000 ÷ $400,000 × 100 = 15%.
- Keep the result as a percentage of revenue.
Net working assets are $60,000 and equal 15% of revenue.
Look for these in your work
- Use inventory + receivables − payables.
- Divide by revenue and multiply by 100.
- Label the result as a percentage.
A retailer has inventory $75,000, receivables $25,000, payables $40,000 and sales $600,000. Calculate the ratio and identify the largest working-asset component.
Give me a hint
Subtract payables before dividing by sales.
Compare my reasoning
- Net working assets = $75,000 + $25,000 − $40,000 = $60,000.
- $60,000 ÷ $600,000 × 100 = 10%.
- Inventory at $75,000 is the largest of the two working-asset components.
Net working assets to revenue is 10%; inventory is the largest component to investigate if cash use is a concern.
Look for these in your work
- Calculate net working assets correctly.
- Calculate 10% of sales.
- Identify inventory as the largest component.
A chain's ratio falls from 18% to 11% after it reduces inventory and expands sales. What additional evidence would you request before advising the board?
Give me a hint
Separate denominator growth from balance reduction and check whether service remains reliable.
Compare my reasoning
- Compare the absolute inventory, receivables and payables balances as well as sales growth.
- Review stock-outs, delivery times, obsolete inventory and customer service to see whether leaner stock has harmed operations.
- Check whether payables days or supplier terms changed, then give a recommendation tied to sustainable service and cash needs.
The lower ratio is not enough by itself. Review component balances, sales growth, stock availability and supplier terms before recommending the policy.
Look for these in your work
- Separate balance changes from revenue growth.
- Check operational evidence such as stock-outs and delivery.
- Consider supplier terms before recommending action.
Common mistakes
- Including cash, tax or non-current liabilities in net working assets
- Forgetting to multiply by 100
- Calling the percentage a profit margin
What can you explain now?
Which items define net working assets in this syllabus?
Compare with the explanation
Inventory + trade receivables − trade payables
Use the exact definition printed with the Topic 3.5 ratio.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
State the definition of net working assets and its ratio to revenue.
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.