A ratio of a company's
cash and
liquid assets to its
total liabilities. A cash asset ratio measures a company's
liquidity and how easily it can
service debt and cover short-term liabilities if the need arises. As a result, potential
creditors use this ratio in determining whether or not to make short-term
loans. It is also called the liquidity ratio and the current ratio.
Cash and short-term assets expected to be converted to cash within a year as a percentage of the amount of
annual sales. Because expansion requires capital on hand, the working capital ratio is considered a prime
indicator of a company's ability to expand its operations without taking on additional
debt. Perhaps more straightforwardly, it is often known as the working capital to sales ratio.