Finimpact
What does a working capital ratio above 2.0 indicate?
A working capital ratio above 2.0 indicates that a company has ample resources on hand to meet its short-term liabilities. However, this excessive liquidity could indicate that the company isn’t making the most of its available resources.
Is it bad to have a working capital ratio under 1.0?
In most cases, a working capital ratio under 1.0 is considered bad. That’s because the company doesn’t have enough resources on hand to meet its short-term liabilities.
Are net working capital ratio and working capital ratio the same thing?
Yes, the net working capital ratio and the working capital ratio are the same things. Both measure the financial health of the company.
How does the working capital ratio differ from the current ratio?
The working capital ratio and current ratio are the same exact things. Although the names are different, they share the same formula.

Conclusion

A good working capital ratio varies from business to business. But in general, it’s smart to aim for somewhere between 1.5 and 2.0. You can use these guidelines to make financial decisions that optimize your business’s working capital ratio.

Now that you know the meaning of a good  working capital ratio for your business, you might like to learn more about working capital financing options. Visit our page about the best working capital loans to find out more.

About the Author

Sarah Sharkey

Sarah Sharkey

Personal Finance Writer

Sarah Sharkey is a personal finance writer who enjoys helping people make better financial decisions. Sarah enjoys traveling, hiking and reading when she is not writing.

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