The formulas you've provided relate to the evaluation of a company's liquidity and working capital management. Here's a breakdown of each term and its significance:
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Working Capital Ratio (Current Ratio):
- Formula: Current Assets / Current Liabilities
- Purpose: This ratio measures a company's ability to cover its short-term obligations with its short-term assets. A ratio above 1 indicates that the company has more current assets than current liabilities, which is generally a sign of good liquidity.
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Working Capital from Operations to Total Liabilities:
- Formula: Working Capital Provided from Operations / Current Liabilities
- Purpose: This ratio assesses the efficiency of a company's operations in generating working capital relative to its short-term liabilities. It provides insights into how well operational performance translates to liquidity.
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Working Capital Provided by Net Income:
- Formula: Net Income - Depreciation
- Purpose: This calculation shows the working capital generated purely from operational profits after accounting for non-cash expenses like depreciation. It highlights the cash flow aspects of working capital management.
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Working Capital:
- Formula: Current Assets - Current Liabilities
- Purpose: This formula defines working capital itself. It represents the capital that a company uses in its day-to-day operations, indicating the short-term financial health of the company.
Together, these formulas and metrics provide a comprehensive view of a company's liquidity and operational efficiency concerning its short-term debts and obligations.