Title: The Working Capital Ratio and a Company's Management
Headings: The Working Capital Ratio and a Company's Capital Management
The Working Capital Ratio and a Company's Capital Management
Changes in Assets and Liabilities Affect Working Capital
Low Working Capital
High Working Capital

Content: The Working Capital Ratio and a Company's Management
Corporate Finance & Accounting Financial Ratios
The Working Capital Ratio and a Company's Capital Management
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J.B. Maverick is a novelist, scriptwriter, and published author with 17+ years of experience in the financial industry. Learn about our editorial policies
J.B. Maverick
Updated Mar 29, 2019
Businesses that go bankrupt don't usually do so because they're not profitable. Rather, they go bankrupt because their cash reserves run dry, and they can't meet current payment obligations. An otherwise profitable company may also run out of cash because their capital requirements continue to increase in order to support additional investment in inventories and accounts receivable as they grow. The working capital ratio can help you avoid this pitfall. The working capital ratio is commonly used to assess a company's financial performance. Low working capital ratio values, near one or lower, can indicate serious financial problems with a company. The working capital ratio reveals whether the company has enough short-term assets to pay off its short-term debt. Most major projects require an investment of working capital, which reduces cash flow. Cash flow will also be reduced if money is collected too slowly, or if sales volumes are decreasing, which will lead to a fall in accounts receivable.