About Working Capital

Working capital is a measure of a company's short-term financial health and operational efficiency. It represents the difference between current assets and current liabilities, indicating the funds available for day-to-day operations and growth.

Key Components

Current Assets

  • Cash and cash equivalents
  • Accounts receivable
  • Inventory
  • Marketable securities
  • Other liquid assets

Current Liabilities

  • Accounts payable
  • Short-term debt
  • Current portion of long-term debt
  • Accrued expenses
  • Other short-term obligations

Important Financial Ratios

Current Ratio

Measures a company's ability to pay short-term obligations. A ratio above 1.0 indicates good short-term liquidity.

Quick Ratio

Similar to current ratio but excludes inventory. A ratio above 1.0 shows strong immediate liquidity.

Working Capital Management Tips

Inventory Management

Optimize inventory levels to reduce carrying costs while maintaining adequate stock for operations.

Cash Flow Optimization

Accelerate collections, manage payment timing, and maintain efficient cash conversion cycles.