5.2.2 Working Capital
| In this lesson you will learn: |
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✅ The concept and importance of working capital |
Working capital: capital available to a business day to day to pay short term debts. Working capital is calculated by subtracting current liabilities from current assets.
| Working Capital = Current Assets – Current Liabilities |
As we have seen with the importance of cash flow, working capital is essential for the survival and effective operation of a business.
Working capital also shows the financial strength of a business. Investors and banks will check to ensure a business has sufficient working capital before considering offering to finance a business.
Working capital and cash flow is analysed further with the use of liquidity ratios in 5.5.2
