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Inventories
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| Inventory to Working Capital =
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Current Assets - Current Liabilities
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Explanation of Inventory to Working Capital:
The Inventory to Working Capital ratio measures how well the
company is able to generate cash using Working Capital at its current inventory
level.
Importance of Inventory to Working Capital
An increasing Inventory to Working Capital ratio is generally
a negative sign, showing the company may be having operational
problems. If a company has too much Working Capital invested in
Inventory, they may have difficulty having enough Working Capital to make
payments on Short-Term Liabilities and Accounts Payable. This is a great
ratio to be used with several others to really pick apart the inner workings of
a company.
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