Working Capital is a notion that business owners and managers need to come to grips with and manage effectively in order to ensure sustainability.
Maintaining healthy working capital provides a safety net to absorb possible bad debts, for example, and may be critical if you need to apply for a business loan. It is also critical for maintaining operations if you receive an unusually large order from a client.
As discussed in a previous post, the formula for Working Capital, also called Net Current Asset, is:
Working Capital = Current Assets – Current Liabilities
In other words, it is the sum of Cash at Bank + Accounts Receivables + Inventories + Other Current Assets minus the sum of Accounts Payables + GST & Tax Liabilities + Other Current Liabilities. Read more