Scribd Logo
Upload

Welcome to Scribd!

  • 9 views

    Working Capital

    Uploaded by

    changazi_42
    Working capital represents a company's operating liquidity and is calculated as current assets minus current liabilities. It measures a company's ability to pay off short-term debt obligations and cover upcoming expenses. Positive working capital is required to ensure a company can continue operating without issues paying debts or expenses. Managing working capital involves overseeing key current accounts like inventory, accounts receivable, and accounts payable to maintain adequate short-term financing and meet near-term obligations.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd

    Working Capital

    Uploaded by

    changazi_42
    9 views1 page
    Working capital represents a company's operating liquidity and is calculated as current assets minus current liabilities. It measures a company's ability to pay off short-term debt obligations and cover upcoming expenses. Positive working capital is required to ensure a company can continue operating without issues paying debts or expenses. Managing working capital involves overseeing key current accounts like inventory, accounts receivable, and accounts payable to maintain adequate short-term financing and meet near-term obligations.

    Copyright

    © Attribution Non-Commercial (BY-NC)

    Available Formats

    DOC, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Working capital represents a company's operating liquidity and is calculated as current assets minus current liabilities. It measures a company's ability to pay off short-term debt obligations and cover upcoming expenses. Positive working capital is required to ensure a company can continue operating without issues paying debts or expenses. Managing working capital involves overseeing key current accounts like inventory, accounts receivable, and accounts payable to maintain adequate short-term financing and meet near-term obligations.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    9 views1 page

    Working Capital

    Uploaded by

    changazi_42
    Working capital represents a company's operating liquidity and is calculated as current assets minus current liabilities. It measures a company's ability to pay off short-term debt obligations and cover upcoming expenses. Positive working capital is required to ensure a company can continue operating without issues paying debts or expenses. Managing working capital involves overseeing key current accounts like inventory, accounts receivable, and accounts payable to maintain adequate short-term financing and meet near-term obligations.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    of 1

    WORKING CAPITAL

    Working capital, also known as net working capital or NWC, is a financial metric which
    represents operating liquidity available to a business. Along with fixed assets such as plant and
    equipment, working capital is considered a part of operating capital. It is calculated as current
    assets minus current liabilities. If current assets are less than current liabilities, an entity has
    working capital deficiency, also called a working capital deficit.

    Working Capital = Current Assets − Current Liabilities

    A company can be endowed with assets and profitability but short of liquidity if its assets cannot
    readily be converted into cash. Positive working capital is required to ensure that a firm is able to
    continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and
    upcoming operational expenses. The management of working capital involves managing
    inventories, accounts receivable and payable and cash.

    Current assets and current liabilities include three accounts which are of special importance.
    These accounts represent the areas of the business where managers have the most direct
    impact:

     accounts receivable (current asset)


     inventory (current assets), and
     accounts payable (current liability)

    The current portion of debt (payable within 12 months) is critical, because it represents a short-
    term claim to current assets and is often secured by long term assets. Common types of short-
    term debt are bank loans and lines of credit.

    An increase in working capital indicates that the business has either increasedcurrent
    assets (that is received cash, or other current assets) or has decreased current liabilities, for
    example has paid off some short-term creditors.

    Decisions relating to working capital and short term financing are referred to as working
    capital management. These involve managing the relationship between a firm's short-
    term assets and its short-term liabilities. The goal of working capital management is to
    ensure that the firm is able to continue its operations and that it has sufficient cash flow to
    satisfy both maturing short-term debt and upcoming operational expenses.

    You might also like