1. What is Working Capital?

Working Capital (WC) is a financial metric that represents a company's operating liquidity. It's calculated as current assets minus current liabilities, showing the short-term financial health of a business.

2. How Does the Calculator Work?

The calculator uses the working capital formula:

Where:

• \( Current\ Assets \) — Cash and assets convertible to cash within one year
• \( Current\ Liabilities \) — Debts and obligations due within one year

Explanation: Positive working capital indicates a company can pay its short-term liabilities, while negative suggests potential liquidity problems.

3. Importance of Working Capital

Details: Working capital is crucial for day-to-day operations, meeting short-term obligations, and funding growth without additional debt. It's a key indicator of financial health.

4. Using the Calculator

Tips: Enter current assets and current liabilities in USD. Both values must be positive numbers. The calculator will compute the difference.

5. Frequently Asked Questions (FAQ)

Q1: What's a good working capital ratio?
A: Generally, a ratio between 1.2 and 2.0 is considered healthy, indicating sufficient assets to cover liabilities.

Q2: Can working capital be negative?
A: Yes, negative working capital means current liabilities exceed current assets, which may indicate financial distress.

Q3: How often should working capital be calculated?
A: Businesses should monitor working capital regularly, typically monthly or quarterly.

Q4: What's the difference between working capital and cash flow?
A: Working capital is a snapshot of current assets/liabilities, while cash flow shows money movement over time.

Q5: How can a company improve its working capital?
A: Strategies include collecting receivables faster, managing inventory efficiently, and negotiating better payment terms with suppliers.