A method and apparatus for determining the operating health of a hydraulic system are provided. The method may include the steps of determining a plurality of operating parameters of the hydraulic system during operation of the hydraulic system, determining an estimated working condition value of the hydraulic system, modifying the estimated working condition value as a function of the operating parameters, and determining the operating health of the hydraulic system as a function of the working condition value. In one method, the working condition value may be indicative of an effective bulk modulus value of an operating fluid within at least part of the hydraulic system.