In preparing your financial ratio analysis of a firm,

In preparing your financial ratio analysis of a firm,

In preparing your financial ratio analysis of a firm, your supervisor has suggested you add another ratio:

Working capital-to-assets ratio =

_{Net working capital}

_{————————————————— – –}

Total assets

where net working capital is the difference between current assets and current liabilities.

a. What type of ratio is this: coverage, return, turnover, or compo- nent percentage?

b. What financial characteristic of a firm does this ratio capture?

c. Suppose you calculated a value of 10% for this ratio. What does that mean?

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