What is the working capital ratio?
Some use the term working capital ratio to mean working capital or net working capital. Working capital is defined as current assets minus current liabilities. When used in this manner, working capital ratio is not really a ratio. Rather, it is simply a dollar amount.
For example, if a company has $900,000 of current assets and has $400,000 of current liabilities, its working capital is $500,000. If a company has $900,000 of current assets and has $900,000 of current liabilities, it has no working capital.
Other people use the term working capital ratio to mean the current ratio, which is defined as the amount of current assets divided by the amount of current liabilities.
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About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years. He is the creator and author of all the content found on AccountingCoach.com. You can read 1,500 testimonials praising his ability to explain accounting in a way that anybody can understand.
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