Working Capital Dollars: What the Current Ratio Misses
Summary
Hollow Point Trading shares a short lesson on why the current ratio alone does not show a company’s dollar cushion. It compares two hypothetical businesses with ratios of 2 but working capital of $3 million and $30 million, showing why absolute liquidity matters.
https://youtu.be/5s8Gdo8eFf4
Working capital dollars answer a different question #Shorts
A current ratio does not tell you the dollar cushion. Imagine one hypothetical business has six million dollars of current assets and three million of current liabilities. Another has sixty million of current assets and thirty million of current liabilities. Both current ratios equal two. But subtract current liabilities from current assets. Wor...
