What is Working Capital?
Formula: Current Assets – Current Liabilities = Working Capital
Working Capital (WC) is the difference between Current Assets versus Current Liabilities. (Current Assets are those assets that will be turned into cash within one year. Current Liabilities are those liabilities due within one year) This calculation represents the liquidity that a company has to meet its obligations coming due in the next 12 months. Though the amount should be positive, in times of distress it can be a negative amount.
Often used as a management tool, track the change in WC on a weekly basis. A company that is generating profits is usually increasing their WC. Conversely, declining profits often consume WC.
See Flash Report.