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The Working Capital Ratio or Current Ratio is a financial ratio that measures whether or not a company has enough cash to pay off all the debt payments that are due over the next 1 year (12 months) It compares the organizations current assets and its current liabilities.
Formula:
WCR = Current Assets / Current Liabilities
Ex: Let us say ABC Corp has total assets of 5 crores and owes State Bank of India a loan of 3 crores to be repaid before the end of next year, the WCR for them would be
WCR = 5,00,00,000/3,00,00,000 = 1.66
This effectively means that, as of today ABC corp has 1.66 rupees for every rupee of debt it owes SBI.
Though this is good, an acceptable WCR in market terms is 2 or greater which shows that the company is sufficiently liquid and financially stable.
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Why working capital is important and some ratio of working capital?
Working capital is a business's blood as well as the oxygen that gives your business its every breath. In other words, working capital is what keeps your business alive and functioning. Working capital is obviously very important. Have you noticed that your business's cash flow is not as steady as you wish? Has it become difficult to pay for your business's day-to-day expenses? If so, you might be in need of working capital.
How do you calculate net capital ratio?
Net Capital Ratio =Total assets / Total Liabilities
What is Tier 1 Risk-Based Capital Ratio?
It's the ratio of leverage to core capital at a bank, wikipedia has an excellent explanation
What is the quick ratio?
The quick (or acid-test) ratio equals current assets minus inventory divided by current liabilities. This ratio is used to evaluate liquidity and is often used in conjunction with the current ratio. The difference between the current ratio and the quick ratio tells you how much inventory may be tied up in current assets. Relatively large inventories are often a sign of short-term trouble.
What are the four main elements that constitute working capital?
The working capital can be constituted the , CASH, INVENTORY , RECEIVABLE , minus whatever a company owes in short term. these are the four and major elements of working capital.
