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Ratios: Working Capital and the Current Ratio definitions Flashcards

Ratios: Working Capital and the Current Ratio definitions
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  • Current Ratio
    A liquidity measure showing how many dollars of current assets are available for each dollar of current liabilities.
  • Working Capital
    A dollar amount representing the excess of current assets over current liabilities, indicating short-term financial health.
  • Liquidity Ratio
    A financial metric assessing a company's ability to meet short-term obligations using assets easily converted to cash.
  • Current Assets
    Resources expected to be converted to cash or used up within one year, such as cash, inventory, and receivables.
  • Current Liabilities
    Obligations due to be settled within one year, including accounts payable and short-term debt.
  • Short-term Financial Stability
    A company's capacity to cover its immediate obligations, often indicated by positive working capital and a current ratio above 1.
  • Negative Working Capital
    A situation where current liabilities exceed current assets, signaling potential short-term financial problems.
  • Positive Working Capital
    A condition where current assets surpass current liabilities, reflecting an ability to meet short-term debts.
  • Asset Management Efficiency
    The effectiveness with which a company utilizes its assets, with excessive working capital possibly indicating inefficiency.
  • Fixed Assets
    Long-term resources such as property or equipment, not intended for quick conversion to cash.
  • Financial Analysis
    The process of evaluating financial data, such as ratios, to assess a company's performance and stability.
  • Liquidity Problems
    Difficulties in meeting short-term obligations, often signaled by a current ratio below 1 or negative working capital.
  • Dollar Amount
    A specific monetary value, such as the result of working capital calculation, representing the difference between assets and liabilities.
  • Short-term Obligations
    Debts or payments due within one year, typically covered by current assets.
  • Financial Metric
    A quantitative measure, such as a ratio or difference, used to evaluate aspects of a company's financial health.