Liquidity analysis

Question 1

Net Working Capital

equation

Answer 1

C.A. - C.L.
The working capital ratio (Current Assets/Current Liabilities) indicates whether a company has enough short term assets to cover its short term debt. Anything below 1 indicates negative W/C (working capital). While anything over 2 means that the company is not investing excess assets. Most believe that a ratio between 1.2 and 2.0 is sufficient

Question 2

Current Ratio

equation

Answer 2

C.A / C.L.

measures a company’s ability to pay short-term and long-term obligations