What is working capital?
Working capital is the difference between a business's current assets and current liabilities. It represents the funds available to run day-to-day operations. Positive working capital means the business can cover its short-term obligations; negative working capital is a warning sign of potential liquidity problems.
What is a good current ratio?
A current ratio of 1.5 to 2.0 is generally considered healthy for most businesses. You have £1.50 to £2.00 of current assets for every £1.00 of current liabilities. Below 1.0 means current liabilities exceed current assets, which can indicate liquidity risk. Above 3.0 may indicate idle cash that could be put to work.
What is the difference between current ratio and quick ratio?
The quick ratio, also called the acid test ratio, excludes inventory from current assets because inventory may not be quickly convertible to cash. It gives a more conservative view of liquidity. For businesses with high inventory such as retailers or manufacturers, the quick ratio is often a more useful measure than the current ratio.