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Working Capital

Working Capital – a common measure of company’s liquidity and financial sustainability representing the amount of funds left after excluding current liabilities of a firm from its current assets. In other words, it is the amount of current assets available for company's every day operations. Reasonability of its usage should be determined through comparing the company's working capital amount to previous periods. Comparing the working capital of different companies usually is meaningless due to the different sizes of companies and specifics of their operating process. In case of negative working capital values, reasons should be found in the individual analysis of different current assets and curent liabilities.

If the main part of company's working capital are cash and cash equivalents, lower amount of working capital can be considered sufficient. On the other hand, if it consist mostly of relatively slowly convertable current assets, company would need more working capital.


Working Capital = Current Assets - Current Liabilities


Working Capital (Year 1) = 656 - 464 = 192

Working Capital (Year 2) = 766 - 911 = -145

The decline of company’s working capital in year 2 comparing to year 1 means its position in terms of liquidity and financial sustainability has become worse. Negative working capital value in year 2 means low flexibility due to the inability of easy modification of the noncurrent assets as sales volume changes.


Working capital is the amount of company's current assets (net of its current liabilities), needed for the everyday operational activities of a firm. Excess of company's current liabilities over its current asssets possibly indicates company's difficulties paying back its short term creditors. Money invested into the inventory, or money, that is owed to a company by debtors (accounts receivable) cannot be used to pay back the debt in short term. That's why every firm is interested in having a reasonable sufficient amount of cash and easily convertable into cash current assets on its accounts.