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    Thread: What is working capital?

    1. #21
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      Working capital, also known as net working capital, is the difference between a company’s current assets, like cash, accounts receivable (customers’ unpaid bills) and inventories of raw materials and finished goods, and its current liabilities, like accounts payable. Working capital is a measure of both the operational efficiency and financial health of a company in the short term. The ratio of working capital( current assets / current liabilities) or current liabilities indicates whether a company has sufficient short- term assets to cover short- term debt. A good work capital ratio between 1.2 and 2.0 is considered. A ratio of less than 1.0 indicates negative working capital with possible liquidity problems, whereas a ratio of more than 2.0 indicates that a company does not effectively use its excess assets to generate maximum revenue. If a company's current assets do not exceed its current liabilities, then it may have trouble paying back creditors or go bankrupt. A declining working capital ratio is a red flag for financial analysts. You could also look at the rapid ratio, which is more an acid test of short- term liquidity because it only includes cash and cash equivalents, marketable investments and debt accounts.


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      Working capital is defined as the net of current assets against current liabilities which in effect represents operating liquidity available to a business, organization, or other entities. The concept of working capital in business is very important because it shows of any potential liquidity or cash-flow problems that the business may encounter based on its working capital. Even if a company is having profits but if its current assets are tied-up with inventories and receivables then the company would have a hard time to operate efficiently and effectively. Good management dictates that working capital should be managed effectively for the company to survive and flourish.


    3. #23
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      The working capital of a company is the measure of the operational assets capability of the company, it is the gauge to check the stress within the running assets of the company. In this situation, the current asset should be more than the current liability, and to know that this is in the right gauge, the company should be able to cover up for their short term financial needs, this is important in making sure of the smooth running of the financial transaction of the company. This short term asset are being using in the day to day operational costs of the company, it is also being used in the payment of bills and workers salaries. It is what the company will be using as their loan repayment as well, there is no company that will be doing well and will not have a good working capital, because that is the main capital that will keep the company running under good health.

      But in the moment that the working capital of the company is in the negative side, it means that the liability is more than the asset, this means that the company will soon go bankruptcy if a tangible measure is not put in place. A good company will always have their short term debt covered up by their short term assets, that is why they will have to make some measure to fix things in the right balance again, and everything will continue to be running smoothly for the company.


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      Working capital is based upon the liquidity of any business organization ,actually its nothing but the current asset .

      The calculation is done by making the difference of current assets and current liabilities .
      Here the receivable accounts and the inventories are counted as current assets and the payable accounts are the current liabilities .
      So we can easily tell that when the Working capital of any organization increases when the current assets increases and the decrease of liabilities of current positions takes place.
      Actually the main aim of managing a proper working capital is that how that operates .


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      The working capital is the the amount of money that is available in for the company to pay its operating expenses, before receiving the payments of its customers. In other words, the working capital refers to the funds available to the company to finance its productive activity and investment in the longer term.

      The working capital can be calculated in two ways. The calculation must obviously lead to the same result. But the most common way of calculating the working capital is from the top of the balance sheet.
      Working capital = permanent capital - immobilized assets.


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      To my own knowledge capital is the money you use to start a business that means a working capital is the money you set aside after removing your profit to keep the business running. That capital cannot be spent it is solely meant to keep the business running. It may also be the capital you've already put into the business. This kind of capital of a business is used in its day-to-day trading operations, calculated as the current assets minus the current liabilities.


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      In foreign exchange market, the working capital can be seen or referred to as the amount or money that a trader has to invest into his trades on s day to day basis. The working capital is the total amount of money that the forex traders has at his disposal to use to invest or make trades. For example, you open an account and you have 5000 dollars, that amount that you have there and can use to trade in forex Can be seen or known as working capital.
      The working capital a forex trader has would decide how much he is willing to make new profits in the business. Even tho the working capital most times can be removed, it is not removed, but rather it is used to make more profit which in turn can be removed.
      You need a fairly large or medium working capital so as to be able to sustain your accounts.. An account that has small working capital is more liable to crash than an account with a great working capital.


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