11/12/18 Working capital

 

Working capital is the difference between a company’s current assets — e.g. cash, accounts receivable, inventories of raw materials and finished goods, etc. — and its current liabilities, like accounts payable.

The resulting ratio indicates whether a company has enough short-term assets to cover its short-term debt. A low working capital ratio shows that the company may have potential liquidity problems, or that is not using its excess assets effectively to generate maximum possible revenue.

Working capital is also known as net working capital.