Title: How to Calculate Working Capital: A Small Business Guide 2021  | The Blueprint
Headings: A Beginner's Guide to Working Capital
A Beginner's Guide to Working Capital
Overview: What is working capital in accounting?
Working capital vs net working capital: Is there a difference?
How to calculate working capital
Current Assets - Current Liabilities = Net Working Capital
$125,000 - $95,000 = $30,000 Net Working Capital
Current Assets ÷ Current Liabilities = Working Capital Ratio
$125,000 ÷ $95,000 = 1.32 Working Capital Ratio
What does working capital tell you about your business?
Whether you need to make changes
The overall liquidity of your business
How healthy your business is
Working capital frequently asked questions
What does it mean if my working capital ratio is less than 1?
Why do I need to know what my working capital is?
Is it difficult to calculate my working capital?
What is a good working capital ratio?
All businesses should know what their working capital is
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Content: Working capital is also a good indicator of overall financial health since it involves all of the following activities: Revenue collection: How much revenue your business collects is reflected in your working capital. How effectively your revenue is being collected, as well as how your revenue is recognized, are also reflected in your working capital. Slow revenue collection can severely impact cash flow, with less cash available to use for paying current bills. Inventory management: While simple on the surface, inventory management can be a complex matter. Over-ordering inventory can leave you with less cash, severely impacting your net income, with your business ultimately ending up with a warehouse full of products that can't be sold. Under-ordering inventory can be just as detrimental, with a potential for lost sales as customers go elsewhere to purchase products you currently don’t have in stock. Accounts payable: