working capital


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Working capital

Defined as the difference between current assets and current liabilities. There are some variations in how working capital is calculated. Variations include the treatment of short-term debt. In addition, current assets may or may not include cash and cash equivalents, depending on the company.

Working Capital

The amount of money a company has on hand, or will have, in a given year. Working capital is calculated by subtracting current liabilities from current assets. That is, one takes the value of all debts and obligations for the current year and subtracts that from the value of all cash and assets that might reasonably be converted into cash in the current year. This is a good measure of the short and medium-term financial health of a company, and may indicate by how much it can expand its operations without resorting to borrowing or another capital raising tactic. Working capital is also called operating assets or net current assets.

working capital

The amount of current assets that is in excess of current liabilities. Working capital is frequently used to measure a firm's ability to meet current obligations. A high level of working capital indicates significant liquidity. Also called net current assets, net working capital. See also current ratio, quick ratio.

Working capital.

Working capital is the money that allows a corporation to function by providing cash to pay the bills and keep operations humming.

One way to evaluate working capital is the extent to which current assets, which can be readily turned into cash, exceed current liabilities, which must be paid within one year.

Some working capital is provided by earnings, but corporations can also get infusions of working capital by borrowing money, issuing bonds, and selling stock.

Working capitalclick for a larger image
Fig. 90 Working capital.

working capital

or

net current assets

An accounting term denoting a firm's short-term CURRENT ASSETS which are turned over fairly quickly in the course of business. They include raw materials, work in progress and finished goods STOCKS, DEBTORS and cash, less short-term CURRENT LIABILITIES. Fig. 90 shows the major components of the working capital cycle.

Increases in the volume of company trading generally lead to increases in stocks and amounts owed by debtors, and so to an increase in working capital required (see OVERTRADING). Reductions in delays between paying for materials, converting them to products, selling them and getting cash in from customers, will tend to reduce the working capital needed. Decisions to hold larger than normal stocks to take advantage of bulk-order discounts or special prices, or in anticipation of materials scarcity, would tie up working capital. Increases in prices of materials or wage rates would also mean that extra working capital would be needed to cover INFLATION.

working capital

a firm's short-term CURRENT ASSETS, which are turned over fairly quickly in the course of business. They include raw materials, work-in-progress and finished goods STOCKS, DEBTORS and cash, less short-term CURRENT LIABILITIES. Increases in the volume of company trading generally lead to increases in stocks and amounts owed by debtors, and so to an increase in working capital required. Reductions in delays between paying for materials, converting them to products, selling them and getting cash in from customers will tend to reduce the working capital needed. See also OVERTRADING, CASH FLOW, CREDIT CONTROL, STOCK CONTROL, FACTORING.

working capital

The difference between cash and other quick assets (current assets) and current liabilities.

References in periodicals archive ?
Concerning specific factors that might materially affect the working capital of a firm, an earlier empirical research by Nunn (1981) uses both correlation analysis and factor analysis to discover the determinants of working capital management for US sample firms.
So, avail a Bajaj Finserv Working Capital Loan as soon as you think you need external aid to manage your cash flow efficiently.
The tire manufacturer in this situation requires a lot of cash to sustain its working capital as it must still pay its suppliers/vendors for the materials to make tires while it waits for the car dealer to pay the $200,000 in full over the next five years.
The importance of working capital management is closely related to the fact that most companies invest large amounts of money into current assets and rely on current liabilities as a source of financing (Deloof 2003, Koralun-Bereznicka 2014) Working capital management consists of all decisions that are related to the management of current assets and liabilities, i.e.
Interest rates are set to increase further in the future in line with US Fed's rates hike, and if this is the case, working capital becomes the most attractive source of cash to fund the potential capex or dividend needs, said the study.
While some might struggle to pay off salaries or obligations because of poor working capital management, the worst thing that may happen is going into a debt spiral.
One of the recent study by Shah and Arif (2018) evidenced a significant negative relationship between net working capital with the firm's value of the Pakistani firms.
One of a managerial accounting strategy is working capital management.
The working capital cycle expressed in number of days, is the average time duration that it takes to turn investment into cash and profit, referred to as working capital days.
In addition to the cash benefits received from better working capital management, leading working capital performers have shown better KPIs across all key financial metrics such as revenue growth, EBITDA margin and return on capital employed, demonstrating the impact of working capital efficiency extends well beyond cash.
The squeeze in working capital was initially felt by small sized companies in 2015, continuing through to 2016, added the report titled "2017 Middle East Working Capital Study" from PwC, a leading provider of assurance, advisory and tax services.
The UAE is the only key economy in the Middle East not suffering from a deteriorating working capital performance, a PwC report shows.