Working Capital Ratio Calculator

What is the Working Capital Ratio?

The Working Capital Ratio is a financial metric that measures a company's ability to cover its short-term liabilities using its current assets. It is calculated by dividing the current assets by the current liabilities. The current assets include cash, accounts receivable, inventory, and other assets expected to be converted into cash within one year. Current liabilities include accounts payable, short-term debt, and other obligations due within one year.

This ratio is crucial as it provides insights into a company's liquidity and financial health. A higher working capital ratio suggests that a company has enough current assets to cover its liabilities, indicating a sound financial position. A working capital ratio above 1 indicates that a company has more current assets than current liabilities, indicating a strong ability to meet short-term obligations. A ratio below 1 implies that a company may struggle to pay off its short-term debts and may face liquidity issues.