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Definition of 'Working Capital' A measure of both a company's efficiency and its short-term financial health.

The working capital ratio is calculated as: This ratio indicates whether a company has enough short term assets to cover its short term debt. Anything below 1 indicates negative W/C (working capital). While anything over 2 means that the company is not investing excess assets. Most believe that a ratio between 1.2 and 2.0 is sufficient. Also known as "net working capital", or the "working capital ratio".

'Working Capital' If a company's current assets do not exceed its current liabilities, then it may run into trouble paying back creditors in the short term. The worst-case scenario is bankruptcy. A declining working capital ratio over a longer time period could also be a red flag that warrants further analysis. For example, it could be that the company's sales volumes are decreasing and, as a result, its accounts receivables number continues to get smaller and smaller. Working capital also gives investors an idea of the company's underlying operational efficiency. Money that is tied up in inventory or money that customers still owe to the company cannot be used to pay off any of the company's obligations. So, if a company is not operating in the most efficient manner (slow collection), it will show up as an increase in the working capital. This can be seen by comparing the working capital from one period to another; slow collection may signal an underlying problem in the company's operations. Current Assets' A balance sheet account that represents the value of all assets that are reasonably expected to be converted into cash within one year in the normal course of business.

these are bills that are due to creditors and suppliers within a short period of time. (which divides current assets minus inventories by current liabilities). In other words. current assets include cash on hand and in the bank. (which divides current assets by liabilities). to foreign currency. accrued liabilities and other debts. Normally. Analysts and creditors will often use the current ratio.Current assets include cash. 'Current Liabilities' A company's debts or obligations that are due within one year. In the United Kingdom. or the quick ratio." 'Current Assets' Current assets are important to businesses because they are the assets that are used to fund day-to-day operations and pay ongoing expenses. 'Current Liabilities' Essentially. current assets are anything of value that is highly liquid. companies withdraw or cash current assets in order to pay their current liabilities. prepaid expenses and other liquid assets that can be readily converted to cash. Current liabilities appear on the company's balance sheet and include short term debt. accounts payable. and marketable securities that are not tied up in long-term investments. inventory. to determine whether a company has the ability to pay off its current liabilities. current assets are also known as "current accounts. accounts receivable. . In personal finance. marketable securities. current assets can range from barrels of crude oil. In personal finance. Depending on the nature of the business. current assets are all assets that a person can readily convert to cash to pay outstanding debts and cover liabilities without having to sell fixed assets. to baked goods.