1. What is Working Ratio?

The Working Ratio measures the proportion of working capital to total assets, expressed as a percentage. It indicates how much of a company's total assets are comprised of working capital, providing insight into the company's liquidity and operational efficiency.

2. How Does the Calculator Work?

The calculator uses the Working Ratio formula:

Where:

• \( \text{Working Capital} \) — Current Assets minus Current Liabilities (currency)
• \( \text{Total Assets} \) — Sum of all assets owned by the company (currency)

Explanation: This ratio shows the percentage of total assets that are available for day-to-day operations and short-term obligations.

3. Importance of Working Ratio

Details: A higher working ratio indicates better liquidity and operational flexibility, while a lower ratio may suggest potential liquidity issues or inefficient use of working capital.

4. Using the Calculator

Tips: Enter working capital and total assets in the same currency. Both values must be positive, with total assets greater than zero for accurate calculation.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good Working Ratio?
A: Generally, a ratio between 20-40% is considered healthy, but this varies by industry. Higher ratios indicate better liquidity.

Q2: How is Working Capital calculated?
A: Working Capital = Current Assets - Current Liabilities. It represents the funds available for daily operations.

Q3: What does a negative Working Ratio mean?
A: A negative ratio indicates negative working capital, which may signal potential liquidity problems and difficulty meeting short-term obligations.

Q4: How often should Working Ratio be calculated?
A: It should be calculated regularly, typically quarterly or annually, to monitor changes in liquidity and operational efficiency.

Q5: What are the limitations of Working Ratio?
A: It doesn't consider the quality of assets or the timing of cash flows, and should be used alongside other financial ratios for comprehensive analysis.