This ratio determines the degree of protection linked to short and long-term debt. More net working capital protects
short-term creditors.
Note: A high ratio (significantly above 100 percent) shows that if liquidation losses on current assets are not excessive,
long-range debtors can be paid in full out of working capital.
Relative financial strength and long-run liquidity are approximated with this calculation. A low ratio points to trouble,
while a high ratio suggests you will have less difficulty meeting fixed interest charges and maturing debt obligations.
Rarely should your business's total liabilities exceed its tangible net worth. If it does, creditors assume more risk than
stockholders. A business handicapped with heavy interest charges will likely lose out to its better financed competitors.
