Cash to Net Working Capital Ratio Definition

Forex Glossary


The word cash to networking capital ratio identifies some metric which enables the investor-analyst to grasp the quantity of working capital offered by cash and liquid investments. In the event the calculated ratio is a lot less compared to 1.0, then your corporation might have trouble fulfilling shortterm duties because of lack of money.


Cash to Net Working Capital Ratio = Cash / Net Working Capital


  • Cash includes both cash in addition to shortterm securities.
  • Net working capital is calculated as current assets minus current liabilities.


Cash flow measures permit the investor-analyst to comprehend whether the business can fulfill its shortterm obligations with cash and highly liquid marketable securities. One of those techniques to comprehend the power of a business to cover these shortterm obligations would be by calculating its cash to net working capital ratio.

By calculating an organizations cash to net working capital ratio, so the investor-analyst will comprehend the percentage of its existing liabilities which may be paid with just short-term and cash securities. Stated yet another way, the metric lets the analyst to know how crucial the group of account receivable and also the selling of inventory will be always to fulfilling their existing responsibilities obligation. When the ratio is far less compared to 1.0, then a corporation has to be exceedingly careful when investing in cash.

As may be true for any metric utilizing shortterm resources or obligations, the investor-analyst has to be skeptical of onetime, near-term events which may have influenced the accounts in those reports.


Company ABC’s CFO want to comprehend just how a provider trusts in the group of account receivable to pay for the organizations current obligations. She asked her analytic team to figure the organizations cash to networking capital ratio and then report their findings into the fund team. The analysts also ascertained the corporation ‘s current obligations were 2,693,000, while current assets were 3,017,000. Present-day assets comprised inventory of 2,132,000, accounts receivable of $625,000, cash of $185,000, and marketable securities of $75,000.

Calculating the money to Networking capital ratio:

= ($185,000 $75,000) / ($3,017,000 – $2,693,000)
= ($260,000 / $324,000), or 0.80

Since the percentage is quite close to 1.0, the CFO reasoned that the organization failed to rely heavily on short-term and cash securities to satisfy its existing liabilities along with the attention of this company ought to really be on the group of account receivable and earnings of present inventory.