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by Pastaman on August 7th, 2003

Pastaman

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What is a working capital?

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  • by Krezzy on September 14th, 2006

    Krezzy

    Working capital is a valuation metric that is calculated as current assets minus current liabilities. Working capital is also known as operating capital. A most important value, it represents the amount of day-by-day operating liquidity available to a business. A company can be endowed with assets and profitability, but short of liquidity if these assets cannot readily be converted into cash. See Working capital management, under Corporate Finance.

    Current assets and current liabilities include three accounts which are of special importance. These accounts represent the areas of the business where managers have the most direct impact:

    accounts receivable (current asset)
    inventory (current assets), and
    accounts payable (current liability)
    In addition, the current (payable within 12 months) portion of debt is critical, because it represents a short-term claim to current assets. Common types of short-term debt are bank loans and lines of credit.

    [edit]
    WCR
    WCR is a loan related acronym for working capital requirement.

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