Working Capital Kpg

Working Capital

What Is Working Capital?

Working capital is defined as the difference between current assets and current liabilities.

Current assets are the most liquid of your assets, meaning they are cash or can be quickly

converted to cash. Current liabilities are any obligations due within one year. Working capital

measures what is leftover once you subtract your current liabilities from your current assets, and

can be a positive or negative amount. The working capital is available to pay your company's

current debts, and represents the cushion or margin of protection you can give your short-term

creditors.

Positive Working capital is essential for your company to meet its continuous operational

needs. The availability of working capital influences your company's ability to meet its trade and

short-term debt obligations, as well as to remain financially viable. If your current assets do not

exceed your current liabilities, you run the risk of being unable to pay short term creditors in a

timely fashion.

Businesses that are seasonal or cyclical often require more working capital to stay afloat during

the off season. Although your company may make more than enough to pay all its obligations

yearly, you must ensure you have enough working capital at any one time to meet your short

term obligations. For example, a company may do significantly more business over the holidays,

resulting in large payoffs at the end of the year. However, the company must have enough

working capital to buy inventory and cover payroll during the off season as well, when revenues

are lower.

Related Terms

capitalise

return on net assets

working capital initiative

capital

free cash flow to equity

working capital requirement

Piotroski score

trade working capital

free cash flow for the firm

Related Terms

capitalise



capital



Piotroski score



Related Terms

capitalise



capital



Piotroski score



Related Terms

capitalise



capital



Piotroski score



Mentioned in these terms

working capital loan

negative working capital




Nearby Terms

worker director

Workers Compensation

Workers Compensation...

working capital init...

working capital loan

working capital requ...

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Working Capital Kpg