Working Capital

Working capital is a measure of a company's liquidity and refers to the amount of money it has available for its day-to-day operations. Working capital is calculated as the difference between a company's current assets and its current liabilities, and is often used as an indicator of a company's ability to meet its short-term financial obligations.

Current assets are assets that are expected to be converted into cash within a year, such as cash and cash equivalents, accounts receivable, and inventory. Current liabilities are obligations that are due within a year, such as accounts payable, salaries and wages payable, and taxes owed.

The formula for calculating working capital is:

Working capital = Current assets - Current liabilities

A positive working capital indicates that a company has more current assets than current liabilities, and is generally considered a sign of financial health and stability. A negative working capital indicates that a company has more current liabilities than current assets, which can be a sign of financial stress or difficulty meeting short-term obligations.

Working capital is an important measure of a company's financial health, as it represents the amount of money it has available to cover its day-to-day expenses and operations. Companies that have high working capital are able to operate more smoothly and efficiently, while those with low working capital may struggle to pay their bills or meet their financial obligations.

Overall, working capital is an important concept in finance and accounting, and is closely monitored by investors, analysts, and other stakeholders. By carefully managing their current assets and liabilities, companies can improve their working capital and position themselves for long-term success.

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