Essay: Working Capital

Sample Essay

Working capital is the total amount of balance or liquidity which is available in a company after paying off all the current liabilities. It is one of the measures of a company’s short term liquidity and ability to meet short term obligations. It is calculated by deducting the total amount of current liabilities from the total amount of current assets. If the current assets are higher than the current liabilities the firm would be able to meet short term obligations quite easily but if the current assets are lower, there would be a problem in the short term period.

The changes in working capital are reported through increase or decrease of current assets and current liabilities in the cash flow from operations section of the statement of cash flows prepared in accordance with FASB (Berman, Knight, & Case, 2006).

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