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Measures company ability to pay its short term financial obligations.[sc:kit05 ]
Working Capital to Total Assets Formula
Explanation of Working Capital to Total Assets
The Working Capital to Total Assets ratio measures a company’s ability to cover its short term financial obligations (Total Current Liabilities) by comparing its Total Current Assets to its Total Assets. This ratio can provide some insight as to the liquidity of the company, since this ratio can uncover the percentage of remaining liquid assets (with Total Current Liabilities subtracted out) compared to the company’s Total Assets.
Importance of Working Capital to Total Assets
An increasing Working Capital to Total Assets ratio is usually a positive sign, showing the company’s liquidity is improving over time. A low or decreasing ratio indicates the company may have too many Total Current Liabilities, reducing the amount of Working Capital available.