working capital ratio

Question 1

working capital ratio, what it measures?

Answer 1

measures the level of liquidity by expressing current assets and non current assets as a percentage or ratio.

Question 2

increase when?

Answer 2

• higher amount of current assets for every dollar of current liabilities
• current assets increases
• current liabilities decreases

Question 3

decreases when?

Answer 3

lower amount of current assets for every dollar of current liabilities
- current assets decreases
- current assets increases

Question 4

benchmarks

Answer 4

• previous reporting period
• budgeted performance
• industry average

Question 5

Ratio less than 1 to 1 meaning?

Answer 5

the business might have liquidity problems in the forthcoming year

Question 6

ratio being too high meaning?

Answer 6

there too much inventory (greater change of damage, theft)
- high accounts receivable (susceptible to bad debts)