Financial Analysis: Working Capital Example

Working capital measures the ability to pay current liabilities with current assets. In general, the larger the working capital, the better the ability to pay debts. Working Capital is a measure of liquidity. Working capital is calculated as current assets minus current liabilities. It’s basically just the amount of current assets a company has (more than its current liabilities). Here is Current Asset and Liability section of a sample company’s balance sheet. We’ll use the highlighted current assets and liabilities to determine working capital. For 2015, current assets minus current liabilities gives us working capital of $2,700. For 2016, current assets minus current liabilities gives us working capital of $11,250. Which is a substantial increase.

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