Working Capital Ratio

The Working Capital Ratio, also known as the current ratio, is a liquidity metric that measures a company’s ability to cover its short-term liabilities with its short-term assets. It is calculated by dividing current assets by current liabilities. A ratio above 1 indicates the company has more current assets than current liabilities, suggesting good short-term financial health. Conversely, a ratio below 1 may indicate potential liquidity problems. This ratio helps investors and creditors assess the company’s short-term financial stability and operational efficiency, ensuring it can meet its immediate obligations.