What is ‘Working Capital’

Working capital is a measure of both a company’s efficiency and its short-term financial health. Working capital is calculated as:

Working Capital = Current Assets – Current Liabilities

The working capital ratio (Current Assets/Current Liabilities) 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”.

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