Working Capital

Working capital is defined as the difference between a company’s current assets and current liabilities. A positive working capital means that a company has more assets than liabilities, while a negative working capital indicates that a company has more liabilities than assets.

Current assets include cash and investments, accounts receivable, inventory, and other short-term assets. Current liabilities include Accounts payable, accrued expenses, short-term debt, and other obligations that are due within one year.

The working capital ratio is calculated by dividing a company’s working capital by its total revenues. A higher ratio indicates that a company is better able to pay its short-term obligations.

Working capital is important because it represents a company’s ability to pay its debts and meet its financial obligations. It is also an important indicator of a company’s financial health and can be used to assess the riskiness of investing in a particular company.