WHAT IS WORKING CAPITAL?
WHAT IS THE WORKING CAPITAL FORMULA?
Working Capital is an important factor to take into account when running any business. Working Capital is how much money you will need to make your short-term obligations. That is, to pay rent, taxes, pay for inventory, utilities, payroll and other expenses. Essentially, working capital is the amount your business spends on day-to-day operations. To calculate your working capital, you will need to subtract your current liabilities from your assets. Your assets include cash, current inventory and accounts receivable.
Working capital is crucial because it gives you an understanding of how to run your business in order to remain profitable. To run a successful business, you cannot invest money that you do not have. Thus, you will want to ensure that your working capital is not in the negatives.
The working capital formula helps you gain transparency on these financial questions so that you can avoid bankruptcy.