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Working Capital Ratio Formula:
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The Working Capital Ratio (WCR), also known as the Current Ratio, measures a company's ability to pay its short-term obligations with its short-term assets. It provides insight into the financial health and liquidity position of a business.
The calculator uses the Working Capital Ratio formula:
Where:
Explanation: The ratio indicates how many times a company can cover its current liabilities using its current assets. A higher ratio suggests better short-term financial health.
Details: The Working Capital Ratio is crucial for assessing a company's liquidity, operational efficiency, and short-term financial stability. It helps creditors and investors evaluate the company's ability to meet its short-term obligations.
Tips: Enter current assets and current liabilities in the same currency units. Both values must be positive numbers greater than zero for accurate calculation.
Q1: What is a good Working Capital Ratio?
A: Generally, a ratio between 1.5 and 2.0 is considered healthy. Below 1.0 may indicate liquidity problems, while above 2.0 might suggest inefficient use of assets.
Q2: How does WCR differ from Working Capital?
A: Working Capital is the absolute difference (Current Assets - Current Liabilities), while WCR is the relative ratio (Current Assets / Current Liabilities).
Q3: What are considered Current Assets?
A: Current Assets include cash, accounts receivable, inventory, marketable securities, and other assets expected to be converted to cash within one year.
Q4: What are considered Current Liabilities?
A: Current Liabilities include accounts payable, short-term debt, accrued expenses, and other obligations due within one year.
Q5: Are there limitations to the Working Capital Ratio?
A: Yes, it doesn't account for the quality of current assets or the timing of cash flows. It should be used alongside other financial metrics for comprehensive analysis.