IMPORTANCE OF WORKING CAPITAL RATIOS
Financial Executives check the efficiency of the working capital used by the firms with the help of Ratio Analysis. To measure the efficiency of the working capital, some of the important ratio are given below: 
RATIOS

Formula

Result

Interpretation

Current Ratio

Total Current Assets is divided by Total Current
Liabilities

=X times

It is the relationship
between the amount of current assets and the amount of current liabilities.
It measures the shortterm liquidity position of the firm.

AcidTest Ratio

Total Current AssetsInventories
Total Current Liabilities

=X times

Similar to the Current Ratio but
takes account of the fact that it may take time to convert inventory into
cash.

Working Capital Turnover Ratio

Sales is divided by Working Capital

=X times

A Higher Working Capital Ratio
means lower investment in working capital and better profitability.

Stock Turnover Ratio (in days)

Sales is divided by Inventory

=X days

On average, you turn over the value of your
entire stock every x days. You may need to break this down into product
groups for effective stock management.

Current Assets Turnover Ratio

Sales is divided by Current Assets

=X times

It reflects the efficiency in
generating sales by Current assets.
