Working capital

Working capital
Defined as the difference between current assets and current liabilities. There
are some variations in how working capital is calculated. Variations include the
treatment of short-term debt. In addition, current assets may or may not includ
e cash and cash equivalents, depending on the company.
working capital
The amount of current assets that is in excess of current liabilities. Working c
apital is frequently used to measure a firm's ability to meet current obligation
s. A high level of working capital indicates significant liquidity. Also called
net current assets, net working capital. See also current ratio, quick ratio.

Working Capital
The amount of money a company has on hand, or will have, in a given year. Workin
g capital is calculated by subtracting current liabilities from current assets.
That is, one takes the value of all debts and obligations for the current year a
nd subtracts that from the value of all cash and assets that might reasonably be
converted into cash in the current year. This is a good measure of the short an
d medium-term financial health of a company, and may indicate by how much it can
expand its operations without resorting to borrowing or another capital raising
tactic. Working capital is also called operating assets.
Working capital. Working capital is the money that allows a corporation to funct
ion by providing cash to pay the bills and keep operations humming.
One way to evaluate working capital is the extent to which current assets, which
can be readily turned into cash, exceed current liabilities, which must be paid
within one year.
Some working capital is provided by earnings, but corporations can also get infu
sions of working capital by borrowing money, issuing bonds, and selling stock.
working capital
The difference between cash and other quick assets (current assets) and current
liabilities.
Working Capital
What Does Working Capital Mean?
A measure of a company's efficiency and short-term financial health; a company's
working capital is calculated as shown here:
Positive working capital means that the company is able to pay off its short-ter
m liabilities, whereas negative working capital means that a company is unable t
o meet its short-term liabilities out of its current assets (cash, accounts rece
ivable, and inventory). Working capital also is referred to as net working capit
al.
Investopedia explains Working Capital
If a company's current liabilities exceed its current assets, it may have troubl
e paying back its creditors in the short term. The worstcase scenario is bankrup
tcy. A declining working capital over a longer period should be a red flag to in
vestors. For example, it could signal a decrease in a company's sales, and as a
result, its accounts receivable (future cash flow) will shrink, meaning that fut
ure cash flows will be reduced. Working capital also reveals a company's operati
onal efficiency. Money that is tied up in inventory or money that customers stil
l owe (accounts receivable) cannot be used to pay off any of the company's curre
nt obligations. Therefore, if a company is not operating in the most efficient m
anner (slow collection), that will show up as an increase in working capital. Th
is efficiency can be deduced by