Enter the current assets and current liabilities into the calculator to determine the working capital ratio of a business.

## Working Capital Ratio Formula

The following formula is used to calculate a working capital ratio.

WCR = A / L
• Where WCR is the working capital ratio
• A is the total assets ($) • L is the total liabilities ($)

## Working Capital Ratio Definition

The Working Capital Ratio is a financial metric that measures a company’s ability to cover its short-term liabilities using its current assets. It is calculated by dividing the current assets by the current liabilities.

The current assets include cash, accounts receivable, inventory, and other assets expected to be converted into cash within one year.

Current liabilities include accounts payable, short-term debt, and other obligations due within one year.

This ratio is crucial as it provides insights into a company’s liquidity and financial health. It indicates the company’s ability to meet its short-term obligations without relying on additional external financing.

A higher working capital ratio suggests that a company has enough current assets to cover its liabilities, indicating a sound financial position.

A working capital ratio above 1 indicates that a company has more current assets than current liabilities, indicating a strong ability to meet short-term obligations.

A ratio below 1 implies that a company may struggle to pay off its short-term debts and may face liquidity issues.

## Working Capital Ratio Example

How to calculate a working capital ratio?

1. First, determine the total asset value.

Measure the value of all assets owned by the business.

2. Next, determine the total liabilities value.

Measure the total value of all liabilities owned by the business.

3. Finally, calculate the working capital ratio.

Calculate the working capital ratio using the equation above.

## FAQ

What is working capital ratio?

A working capital ratio is a measure of how much capital a company has to use with respect to liabilities. The greater the ratio, the greater the position of the company.