Working Capital Ratio

Working Capital Ratio Calculator

**This is a basic calculator and does not accept commas. When entering values, just enter the numbers.

Current Assets :
Current Liabilities :

Solution

Working Capital Ratio :   

    

 

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Working Capital Ratio Formula

** Visit balance sheet to learn more about current assets and current liabilities.

 

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What is the Working Capital Ratio?

The working capital ratio is an accounting measure to evaluate a businesses ability to pay current liabilities with current assets. Typically a good working capital ratio is between 1.0 and 2.0. When a business falls below 1.0 it is an indication that they may have financial liquidity problems in the short-term future. When the ratio is around 2.0, the business is reflecting a strong ability to cover liabilities; or they possess favorable short-term liquidity.

 

It is good to measure this ratio on a continuous basis (monthly, quarterly, or annually) to evaluate how the business is trending. If there is observed consistent decline (the number is reducing), then the business will need to evaluate its liabilities and assets to take corrective measures.

 

What is the Difference Between Working Capital and Working Capital Ratio?

The working capital calculation is simply subtracting current assets from current liabilities (Current Assets - Current Liabilities), where as the Working Capital Ratio calculation is Current Assets ÷ Current Liabilities. Both current assets and liabilities are found on the balance sheet and represent a point in time.