2016-11-21 00:00:00 Finance and Accounting English Find out what working capital is and how it is used, and learn the very simple formula used to calculate its value. https://d1bkf7psx818ah.cloudfront.net/wp-content/uploads/2017/03/08214827/Accountant-Calculates-The-Working-Capital-Of-A-New-Start-Up.jpg Working Capital

Working Capital

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Working capital is a financial measure of a company’s operating health. It is calculated by taking current assets and subtracting current liabilities. For example, if a company has $1 million in current assets and $400,000 in current liabilities, the working capital is $600,000.

The working capital ratio shows whether a company has enough short-term assets to cover its short-term liabilities. It is calculated as the current assets divided by the current liabilities. In the above example, the ratio is:

$1 million / $400,000 = 2.5

A ratio below 1 indicates problems for the company, while a ratio higher than 2 means the company is probably not investing enough of its assets.

References & Resources

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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