What does the working capital ratio indicate?

The working capital ratio is a financial metric that assesses a company's short-term financial stability by comparing its current assets to its current liabilities. A higher working capital ratio indicates that the company has a greater proportion of assets available to cover its short-term obligations, which can be a sign of liquidity and operational efficiency. This ratio is critical for stakeholders to determine if a company can maintain and manage its operational costs effectively in the short term.

Other options pertain to different financial aspects of a business. Long-term financial health typically involves various other ratios and measurements, such as debt-to-equity ratio, which focus on the company's ability to sustain itself over a more extended period. Overall profitability is evaluated through metrics like net profit margin or return on equity, which reflect the company's ability to generate profit relative to various inputs. Finally, analyzing revenue compared to fixed assets looks at asset utilization and efficiency but does not directly address the immediacy of financial obligations covered by current assets. Therefore, while all the options relate to important areas of financial analysis, the working capital ratio specifically indicates a company's short-term financial stability.