Ratio analysis

Accounting

List

Working capital describes the funds used to meet the daily financial obligations of the company, i.e., how liquid a company is, or its short-term debt paying ability. Note that it doesn’t give the coverage ratio (i.e., the percentage difference could indicate not a lot), it’s just a raw number.

$$\text{working capital}=\text{current assets}-\text{current liabilities}$$

This ratio is called the current ratio: it’s better than working capital. Higher ($>1$) is better.

$$\text{current ratio}=\frac{\text{current assets}}{\text{current liabilities}}$$