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8.8. The working capital ratio for Butler Business has progressively increased from 1.2 times to 3.0...

8.8. The working capital ratio for Butler Business has progressively increased from 1.2 times to 3.0 over the past three years. Discuss whether this trend is favourable

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Answer #1

The working capital ratio also called as Current Ratio is obtained by dividing the Current assets by the Current liabilities. The working capital ratio shows the short term solvency of the company and it determines whether the company would be able to clear off its short term debts by the short term or liquid assets.

Thus substantially a higher working capital ratio is considered favourable. So in case of Butler business the increase in working capital ratio from 1.2 to 3 times is a favourable trend. It denotes that the company has enough off current assets to pay off its current liabilities.

So this trend is favourable......

In case of any doubt please comment below.

Thank you. Please upvote it..........

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