The Formula Working Capital Ratio – also known as the Operating Cycle Ratio or Net Operating Working Capital ratio – is a measure of a business’s financial health. It measures how much liquidity (cash and near-cash assets) that the business has to cover current obligations, such as short-term debt and payroll. Effectively, it’s a way for businesses to measure how efficiently their working capital is being managed. To calculate the formula working capital ratio, you take the amount of current assets, subtract out the current liabilities, then divide by the average operating cycle of the business. By understanding this ratio, businesses can better gauge whether they have enough liquidity to meet their everyday expenses and remain financially stable.