A business with a current ratio of 1:1 has working capital of how much?

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Multiple Choice

A business with a current ratio of 1:1 has working capital of how much?

Explanation:
Working capital is current assets minus current liabilities. A current ratio of 1:1 means current assets equal current liabilities. Subtracting equal amounts leaves zero, so the working capital is $0. This also means there’s no cushion: assets exactly cover liabilities. Positive or negative figures wouldn’t fit a 1:1 ratio, since assets equal liabilities in that case.

Working capital is current assets minus current liabilities. A current ratio of 1:1 means current assets equal current liabilities. Subtracting equal amounts leaves zero, so the working capital is $0. This also means there’s no cushion: assets exactly cover liabilities. Positive or negative figures wouldn’t fit a 1:1 ratio, since assets equal liabilities in that case.

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