This teaching note has two objectives. First, it explores the limitations of the traditional measures of working capital management presented in the financial ratio analysis component of a typical accounting curriculum. Second, it presents an additional or alternative measure based on early work in the finance literature. Three current asset and liability accounts are combined into a single “Merchandising Ratio,” which provides a measure of the net effect of a firm's working capital management strategy. Data from a sample of retailing companies demonstrate how the merchandising ratio can be used to enhance students' analytical skills.

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