Month End Glossary

Working Capital Ratio

The Working Capital Ratio, also known as the current ratio, is a financial metric calculated by dividing current assets by current liabilities.

The Working Capital Ratio is a vital financial measurement that assesses a company's ability to meet its short-term obligations with its short-term assets. It is computed by dividing current assets, such as cash, accounts receivable, and inventory, by current liabilities, like accounts payable and short-term debt. For example, if a company has $500,000 in current assets and $250,000 in current liabilities, its Working Capital Ratio would be 2:1, indicating a strong liquidity position.

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