Working capital measures both a company’s efficiency and its short-term financial health. To calculate working capital, deduct current liabilities from current assets.
The working capital ratio (current assets divided by current liabilities) indicates whether a company has enough short-term assets to cover its short-term debt.
Anything below 1 indicates negative working capital. Anything over 2 means that the company is not investing excess assets. Most believe that a ratio between 1.2 and 2.0 is sufficient.
