Working capital is a measurement often used to express the relationship between current assets and current liabilities. Working capital is the excess of current assets of a company, organization or any other entity over it’s current liabilities. Every business industry has it’s own standards for working capital, in some industries there should be more working capital available to the company while in some industries a little working capital is enough to smoothly run the company.
If you just sum up all the current assets of a company, it’s know as Gross Working Capital of that company. Now If we deduct current liabilities of the company from gross working capital we will get Net Working Capital. Investors and creditors often use working capital calculation before investing in a prospective business. Note that working capital is not the only measure to judge a company’s liquidity or to know if this company is profitable for investement rather there are other measures too which must be considered before going for any decision.
Gross working capital is the total amount of current assets available to a company, specifically all those current assets which are readily convertible to cash (usually convertible within a year or less). Current assets include … Continue Reading
Net working capital is the remaining amount of current assets available to a company after settling it’s current liabilities or net working capital is total current assets minus total current liabilities. Net working capital shows a company’s efficiency and financial health. Investors and creditors often want to know net working capital of a company in which they are planning to invest. But net working capital is not … Continue reading
Working capital ratio indicates the ratio of current assets to current liabilities; for example … Continue reading
A firm with a deficiency of net working capital is said to be overtrading. Small firms which expand too rapidly frequently fall into this difficulty. They become aware of it when, despite (or because of) excellent trade, they experience a sudden shortage of cash … Continue reading
Working capital are the resources available to a company to run it’s day-to-day operations smoothly. Working capital comprise of cash and liquid assets available to a company after paying it’s current liabilities … Continue reading