Working Capital Ratio Flashcards
What is working capital?
A company’s ability to pay current liabilities and assets
A company’s ability to pay current liabilities and assets
What is working capital?
Why is working capital important measure of a company’s financial health?
Creditors can measure a company’s ability to pay off debt in a year.
Creditors can measure a company’s ability to pay off debt in a year.
Why is working capital important measure of a company’s financial health?
What does working capital represent?
The difference between a firm’s current assets and current liabilities
The difference between a firm’s current assets and current liabilities
What does working capital represent?
What is liquidity?
How easily that company can turn assets into cash to pay short-term obligations
How easily that company can turn assets into cash to pay short-term obligations
What is liquidity?
How to calculate working capital ratio?
Current assets / current liabilities
Current assets / current liabilities
How to calculate working capital ratio?
What if two companies have the same working capital ratio?
If one company had more cash among its current assets, that firm can pay off its debts more quickly
