Working Capital: What It Is and Formula to Calculate
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What is working capital?
Why working capital is important
- It gives businesses borrowing power. Lenders and other creditors look at working capital as a measure of a company’s overall health and a business’s ability to take on new debt.
- It can fluctuate. Even successful businesses struggle with maintaining enough working capital, especially seasonal businesses and companies with large volumes of accounts receivable. Analyzing your business’s financials regularly, including the balance sheet and profit and loss statement, can help you plan to meet potential shortfalls.
How do you calculate working capital?
Read quick overviews of these other important accounting concepts:
Article sources
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