This illustrated glossary uses Visual Finance™ to provide a contextualized 'big picture' view of financial results. The examples feature data for the Round Number Company—a 'made-up company' with simplified figures. The Appendix presents an explanation of how to read Visual Finance as well as the financial statements and VF views for the Round Number Company.
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.