Working Ratio

The working ratio is a financial ratio that measures a company's ability to meet its short-term obligations. It is calculated by dividing current assets by current liabilities. A higher working ratio indicates that a company has more liquid assets available to pay its debts, while a lower working ratio indicates that a company may have difficulty meeting its short-term obligations.

The working ratio is an important indicator of a company's financial health. A company with a high working ratio is generally considered to be in a better financial position than a company with a low working ratio. However, it is important to note that the working ratio is only one indicator of financial health, and it should be used in conjunction with other financial ratios to get a more complete picture of a company's financial situation.

There are a few things to keep in mind when interpreting the working ratio. First, the working ratio is a snapshot of a company's financial situation at a particular point in time. It is important to look at the working ratio over time to see how it has changed. A company with a consistently high working ratio is generally in a good financial position, while a company with a working ratio that is declining may be in financial trouble.

Second, the working ratio is affected by a company's industry. For example, companies in the retail industry typically have higher working ratios than companies in the manufacturing industry. This is because retailers need to have more cash on hand to pay for inventory, while manufacturers do not need as much cash on hand because they do not have to carry as much inventory.

Finally, the working ratio is affected by a company's management policies. For example, a company that takes a conservative approach to managing its cash flow will typically have a higher working ratio than a company that takes a more aggressive approach.

The working ratio is a useful tool for assessing a company's financial health, but it should be used in conjunction with other financial ratios to get a more complete picture.