What is Working Capital Ratio?
The working capital ratio, also called the current ratio, divides a company’s current assets by its current liabilities to measure short-term liquidity. It shows whether the company can cover its short-term obligations from short-term resources.
How It Works
- Pull the closing balances of current assets and current liabilities from the balance sheet.
- Compute current ratio = current assets ÷ current liabilities.
- Benchmark the result against the industry norm and the company’s own history.
- Investigate drivers of any sharp change — inventory build-up, AR aging, payable concentration.
- Pair the ratio with quick ratio and DSCR for a fuller liquidity view.
Saudi Context
Saudi banks and ZATCA both look at working capital ratio when reviewing corporate credit lines and tax instalment requests. SME lending programs through Kafalah and Monsha’at use the ratio to size guaranteed limits.
Example
Current assets SAR 6M, current liabilities SAR 3M. Working capital ratio = 6 ÷ 3 = 2.0× — comfortably above the 1.0× minimum that signals positive working capital.