Working Capital Requirement (Wcr) Definition
A working capital requirement (WCR) is the minimum level of cash that a business needs to function on a day-to-day basis. It is calculated by subtracting current assets from current liabilities.
The WCR is important because it represents the bare minimum amount of cash that a company must have on hand in order to cover its short-term obligations. If a company’s WCR is too low, it may find itself unable to pay its bills and forced to shut down.
To calculate the WCR, simply subtract total current assets from total current liabilities. This will give you the minimum amount of cash required to keep the business running.
Current assets include things like cash, accounts receivable, and inventory. Current liabilities include things like accounts payable, wages payable, and taxes payable.
In general, you want your WCR to be as low as possible without putting the company at risk of not being able to meet its obligations. A lower WCR means less money tied up in short-term operating expenses, which can free up cash for other uses such as investing or repaying debt.
