It is not an exaggeration but a fact that liquidity is very essential for very survival of organization . Hence there is a need for evaluating the liquidity position to find out whether the company is capable of paying all its current obligations
As the working capital is equivalent to the difference between current asset and current liabilities, or as the working capital is the excess of current asset over current liabilities this ratio is also called working capital ratio.
They help to judge the long term financial position of the firm.
These ratio indicate the mix of funds provided by owner and lender.
In order to assess the long term financial soundness
It is necessary to find out whether the organization is able to meet its long term financial commitments whenever they become due and whether the organization is able to maintain or increase the market value of its shares.
The most widely accepted view of ‘fund’ is one relating to ‘working capital’ where in ‘fund is used to denote the working capital which is the difference between current asset and current liabilities. As the current asset comprise of cash also , cash is part of the ‘fund’ in this background