Working Capital Ratio
A metric that shows a business's current assets as a proportion of its liabilities. It's a measure of liquidity, revealing whether a business can pay its obligations. The ratio is calculated by dividing total current assets by total current liabilities.
The working capital ratio is also called the current ratio. It's important to creditors because it shows the liquidity of the company.
A working capital ratio between 1.2 and 2.0 is commonly considered a positive indication of adequate liquidity and good overall financial health. A ratio higher than 2.0 may be interpreted negatively. A working capital ratio lower than one is a potentially worrying sign. It means that your business can't cover all of its short-term liabilities with its assets and may need to borrow money to pay for day-to-day operations.