Final answer:
The working-capital ratio, also known as the current ratio, measures a company's ability to pay off short-term liabilities using current assets. It is expressed as a formula: Working-Capital Ratio = Current Assets / Current Liabilities.
Step-by-step explanation:
The working-capital ratio, also known as the current ratio, is a financial metric used to measure a company's ability to pay off its short-term liabilities using its current assets. It is expressed as a formula by dividing current assets by current liabilities. The formula for the working-capital ratio is:
Working-Capital Ratio = Current Assets / Current Liabilities
For example, if a company has $100,000 in current assets and $50,000 in current liabilities, the working-capital ratio would be 2 (100,000/50,000). A ratio above 1 typically indicates that a company has enough current assets to cover its current liabilities. A ratio below 1 may suggest potential liquidity issues for the company.