Account Keeping Plus – Administration, Bookkeeping, Compliance News & Tips MYOB Reckon Quickbooks Xero Software TrainingSmall Business

Making Business Books and Accounting Come Alive! MYOB Reckon Xero

Business Finance 101 – Working Capital – What it is and what it means

Leave a comment


Working Capital – What it is and what it means

Working Capital – What it is and what it means

Working Capital is calculated as Current Assets (CA) minus Current Liabilities (CL) at a specific date. The CA and CL amounts are on your company’s balance sheet. For example, if your company’s balance sheet has current assets of $150,000 and current liabilities of $120,000 then your company’s working capital is $30,000.

Working Capital – Current Assets – Current Liabilities
But with a significant amount of working capital, a company can still have a period of cash shortage if its current assets are not turning to cash. As an example, a company with most of its current assets locked up in inventory. Or if a company has a large accounts receivables that are not being collected, the working capital amount isn’t much consolation when you can’t meet the payroll run!
Other financial ratios use the working capital components. They include the current ratio, quick ratio, accounts receivable turnover ratio, and inventory turnover ratio.
Good management keeps watch on current assets (receivables and inventory) to keep the cash coming into the bank.

Need help? Not sure? Call for FREE 30min advice / Strategy session today!

Call 0407 361 596Aust and also get FREE“Avoid these GST mistakes”– There’s 18 that the Tax Office see regularly – Get them right!

Advertisements

Author: accountkeepingplus

Administration, bookkeeping and compliance for small business, and Self-Managed Super Funds (SMSF) Training, trouble-shooting, or we can do the books and payroll for you! Self Managed Superannuation Fund Service Provider, Free support MYOB Certified Consultant, Reckon/QuickBooks Professional Partner.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s