This glossary uses Visual Finance™ to bring financial terms to life. Each example shows data from the Round Number Company, a fictional business with simplified figures to make learning easier. For more details, visit 'How to Read Visual Finance'.
Working Capital Ratio calculation: Current Assets divided by Current Liabilities.
Example: The Round Number CompanyCurrent Assets = 132; Current Liabilities = 36 Working Capital Ratio = 132/36 = 3.7 |
This ratio is a measure of the company’s liquidity. It looks at the ability to pay bills (Short-term debt) out of Current Assets.
A good ratio is around 1.2 to 1.8, this indicates the company is in a healthy state to pay its liabilities. A ratio less than 1 indicates the company does not have enough liquid assets to pay its Short-Term Liabilities.
Also known as the Current Ratio.
See also Liquidity Ratios, Acid-Test Ratio, Current Ratio.
The above is our generic explanations of common corporate financial terminology. Actual meanings can vary widely from company to company; in order to have the correct internal definition you need to ask your Finance Department, "What do you mean by that?"
term list.