Working capital ratios

In this lesson

1. 0:00 Working capital ratios overview
2. 1:14 Current and quick ratio explained
3. 2:20 Inventory and receivables metrics
4. 3:19 Payables and net working capital
5. 4:03 What each ratio actually measures
6. 5:45 Sales revenue working capital ratio
7. 6:35 Current ratio worked example

About this lesson

These ratios—current ratio, quick ratio, inventory days, receivables days, payables days, and sales revenue net working capital ratio—are essential tools for spotting liquidity issues and identifying whether a business is over-capitalised or over-trading. You'll discover why each ratio matters and what it reveals about operational performance. The current and quick ratios measure immediate solvency by comparing current assets to current liabilities, with the quick ratio excluding inventory because it's the least liquid asset. Inventory days, receivables days, and payables days tell you how long cash is tied up in each stage of the working capital cycle. The sales revenue net working capital ratio shows how much additional working capital a business needs to support growth in sales. The lesson walks you through the calculation method for each ratio, explains the practical limitations of relying on them in isolation, and demonstrates how to apply them by working through a real example. You'll see how a sale at profit on credit affects the current ratio, reinforcing why context and comparison—to prior periods, competitors, and industry benchmarks—are crucial to drawing meaningful conclusions from these figures. This content is relevant to Financial Reporting, Financial Management, and Performance Management papers across ACCA and CIMA qualifications, where working capital analysis forms a core part of financial statement interpretation and business performance assessment.

Duration: 8m