Ratio Analysis
Working Capital Ratio
(Current Ratio)
= |
Current Assets |
|
Current Liabilities |
Indicates if a firm
has enough short-term assets to cover its immediate liabilities.
| Things to remember |
- If the ratio is less than one
then the company has negative working capital.
- A high working capital ratio isn't
always a good thing, it could indicate that a company has
too much inventory or they are not investing their
excess cash.
|
[Click
on the button above to see the financial statement] |
| For Cory's Tequila Co. |
$4,615 |
=
1.54 |
$3,003 |
This ratio 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, Cory's Tequila Co. seems to be comfortably in this area.
If you wanted to take this ratio a step further then you could
try the Acid
Test/Quick Ratio, a more strenuous version of the
W/C, indicating whether liabilities could be paid without selling
inventory.
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