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Quick Definition

Measures a company’s ability to reduce its debt.

There's More to Financial Analysis Than You Think...

The Financial Analysis Success Kit can help!

Why you should take a look at the Financial Analysis Success Kit:

We've combined all our highly popular financial analysis tools into one mega-financial-analysis-kit that will save you hundreds of dollars if purchased separately. The kit contains 9 files packed with the most important financial ratio analysis tools you can find to help rocket your way to mastering financial analysis. The kit includes:

  1. The eBook "Learn Ratio Analysis In Minutes"

  2. The Learn Financial Ratio Analysis Excel Spreadsheet (2 versions!)

  3. A BONUS eBook..."Key Financial Statement Terms"

  4. Another HUGE BONUS...Five-Part Financial Ratio Cheat Sheet Series

The result? You get all these professionally created tools for a great low price.

Learn more on our product page:

Click the button to learn more about the Financial Analysis Success Kit

 

financial ratio analysis success kit

Click the button to learn more about the Financial Analysis Success Kit

Working Capital to Debt Formula

Explanation of Working Capital to Debt

The Working Capital to Debt ratio measures the ability of a company to eliminate its debt using its Working Capital (Total Current AssetsTotal Current Liabilities). A company that has the ability to quickly pay off its debt if it needs to is looked favorably by creditors and is generally a sign of good financial health.

Importance of Working Capital to Debt

A high, or increasing Working Capital to Debt ratio is usually a positive sign, showing the company can liquidate its Working Capital to quickly pay off its debt, if it had to do so. An event like this would usually be rare; often an extreme downturn in the industry the company operates within, or drastically negative happenings within the company.

Nevertheless, monitoring this ratio is very important to make sure the company has the capability to satisfy its creditors. A ratio of 1.0 or higher is desirable, as this shows the company could pay down its debt with Working Capital.