The Working Capital metric measures your organization's financial health by analyzing readily available assets that could be used to meet any short-term financial liabilities. Working capital includes assets such as on-hand cash, short-term investments, and accounts receivable to demonstrate the liquidity of the business (the ability to generate cash quickly). Working capital is calculated by subtracting current liabilities from current assets.
- Assets: An economic resource that has cash value.
- Liability: A financial obligation that stems from previous transactions, such as a purchase order.
- When expressed as a ratio, a working capital greater than 1 indicates that your company can cover its current liabilities.