Current Ratio (Working Capital Ratio) - Explained
What is the Current Ratio?
Written by Jason Gordon
Updated at April 7th, 2022
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What is the Working Capital Ratio?
The working capital ratio, also called the current ratio, is a liquidity ratio that measures a firm’s ability to pay off its current liabilities with current assets.
Current Ratio = Current Assets / Current Liabilities
When current assets exceed current liabilities, the Company has sufficient capital to run its day-to-day operations. In other words, it has enough capital to work.
A higher ratio is more favorable for the company.
Related Topics
- Trend Analysis of Financial Statements
- Common-Size Analysis (Vertical Analysis) of Financial Statements
- Common-Size Financial Statement
- Net Dollar Retention
- Horizontal Analysis
- Per Share Basis
- Profitability Ratios
- Gross Margin Ratio
- Profit Margin
- After Tax Profit Margin
- Return on Assets
- Total Shareholder Return
- Cash on Cash Return
- Earnings Per Share
- Diluted Earnings Per Share
- Asset Turnover Ratio
- Berry Ratio
- Break-Even Analysis
- Liquidity Ratio
- Current ratio (Working Capital Ratio)
- Working Ratio
- Quick Ratio
- Quick Assets
- Days Sales Outstanding
- Cash Ratio (Operating Cash Flow Ratio)
- Receivables turnover ratio (often converted to average collection period)
- Accounts Payable Turnover Ratio
- Inventory turnover ratio (often converted to average sale period)
- Solvency (Coverage Ratios)
- Leverage Ratio (Debt Ratio)
- Asset Coverage Ratio
- Debt to Equity
- Debt to Income Ratio
- Debt Coverage Ratio
- Times Interest Earned
- Market Capitalization
- Price to Equity Ratio
- Book-To-Market Ratio
- Price to Earnings Ratio
- Price to Earnings Growth (PEG) Ratio
- Price to Earnings Growth Payback Ratio
- CAPE Ratio
- Price to Cash Flow Ratio
- Capital Maintenance
- Book to Bill Ratio
- Asset Turnover Ratio
- Plowback Ratio
- Days Inventory Outstanding
- Days Payable Outstanding
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- Non-financial Performance Measures: The Balance Scorecard
