Working Capital Ratio Definition & Meaning | Fundamental Analysis | CSIMarket
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Glossary

Working Capital Ratio

Fundamental Analysis

Working Capital Ratio is a financial metric used to measure a company*s short-term liquidity and ability to pay off its short-term debts. It is calculated by dividing a company*s current assets by its current liabilities. The higher the working capital ratio, the better the company*s financial position is.

Fundamental analysts use the Working Capital Ratio to assess the health of a company*s balance sheet and management*s ability to manage its short-term debt obligations. A low working capital ratio can indicate a company is struggling to meet its short-term obligations and may signal underlying financial problems. Conversely, a high working capital ratio can indicate a company has adequate cash flow to manage its short-term liabilities.

The Working Capital Ratio formula is:

Working Capital Ratio = Current Assets / Current Liabilities.




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