Working Capital Ratio (Formula, Examples) | Calculation

In this video on Working Capital Ratio, we are going to discuss what is working capital ratio? its formula, examples, calculations and many more. 𝐖𝐡𝐚𝐭 𝐢𝐬 𝐖𝐨𝐫𝐤𝐢𝐧𝐠 𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐑𝐚𝐭𝐢𝐨? ------------------------------------------------- The day to day fund required for an organization’s trading operations is called as working capital. Working Capital measures the financial health of the company. 𝐖𝐨𝐫𝐤𝐢𝐧𝐠 𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐑𝐚𝐭𝐢𝐨 𝐅𝐨𝐫𝐦𝐮𝐥𝐚 ------------------------------------------------- Working capital ratio = Current Assets / Current Liabilities 𝐅𝐨𝐫𝐦𝐮𝐥𝐚 𝐭𝐨 𝐦𝐞𝐚𝐬𝐮𝐫𝐞 𝐖𝐨𝐫𝐤𝐢𝐧𝐠 𝐂𝐚𝐩𝐢𝐭𝐚𝐥 ---------------------------------------------------------------- Working Capital = Current Assets – Current Liabilities 𝐊𝐞𝐲 𝐂𝐨𝐦𝐩𝐨𝐧𝐞𝐧𝐭𝐬 𝐨𝐟 𝐖𝐨𝐫𝐤𝐢𝐧𝐠 𝐂𝐚𝐩𝐢𝐭𝐚𝐥 -------------------------------------------------------------- 𝟏. 𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐀𝐬𝐬𝐞𝐭𝐬: Current assets include cash and other assets that can be converted into cash within a year's span. 𝐄𝐱𝐚𝐦𝐩𝐥𝐞 𝐨𝐟 𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐀𝐬𝐬𝐞𝐭𝐬 ---------------------------------------------- 1. Account Receivable 2. Inventory - which consist of raw materials, finished goods and work in progress 3. Bank Balance 4. Short term investment in mutual funds 𝟐. 𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬: Current liabilities are such that will be due within a year or will need to be paid within a span of one year 𝐄𝐱𝐚𝐦𝐩𝐥𝐞 𝐨𝐟 𝐂𝐮𝐫𝐫𝐞𝐧𝐭 𝐋𝐢𝐚𝐛𝐢𝐥𝐢𝐭𝐢𝐞𝐬 ---------------------------------------------------- 1. Notes payable (due within a year) 2. Other expenses that are generally payable in a month’s time such, salary, material supply, etc 3. Accounts payable 𝐖𝐨𝐫𝐤𝐢𝐧𝐠 𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐅𝐢𝐧𝐚𝐧𝐜𝐢𝐧𝐠 𝐎𝐩𝐭𝐢𝐨𝐧𝐬 ------------------------------------------------------------- 1. Cash credit or overdraft facility with banks 2. Traditional loans 3. Credit card payments 4. Letter of credit 5. Inter-corporate deposit To know more about Working Capital Ratio, you can go to the 𝐥𝐢𝐧𝐤: https://www.wallstreetmojo.com/working-capital-ratio-formula-management-financing/ Subscribe to our channel to get new updated videos. Click the button above to subscribe or click on the link below to subscribe - https://www.youtube.com/channel/UChlNXSK2tC9SJ2Fhhb2kOUw?sub_confirmation=1