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Working capital to total assets ratio definition

Description

Working capital to total assets ratio is useful while evaluating the company’s level of liquidity. Data to calculate this ratio is collected from the balance sheet.

This ratio is important for the company’s managers and owners, as the ratio indicates possible lack of funds to continue business operations.

Norms and limitations

There are no general norms for this ratio.

If the value of this ratio is negative, it is likely that the company might have problems covering its’ short term liabilities (debts). It is recommended to compare this ratio to those of the companies, working within the same industry.

Formula

Working capital (net working capital, NWC) is calculated by deducting current liabilities (current debts) from current assets.

Assets (Total assets) - a balance sheet item, representing what a company owns.