Title: Can working capital be too high?
Headings: Can working capital be too high?
Can working capital be too high?
Understanding Working Capital
Assessing Working Capital Management

Content: Understanding Working Capital
A company's working capital position indicates how financially sound the company is and how efficiently it is being managed. The working capital ratio measures liquidity and is often used in conjunction with the current ratio to gauge a company's ability to handle short-term obligations. The working capital ratio is calculated by dividing current assets by current liabilities. For this calculation, current assets are assets a company reasonably expects to be converted into cash within one year or one business cycle. This includes items such as inventory, accounts receivables, and cash or cash equivalents. Current liabilities include accounts payables, leases, income taxes and payable dividends. An examination of working capital takes into account key elements of a company's basic business operations, such as inventory, accounts receivables and accounts payables. How well a company manages each element is ultimately reflected in the company's working capital ratio. Exceptionally efficient or inefficient handling of any of these basic operations impacts a company's working capital position. Assessing Working Capital Management
A working capital ratio of 1.0 indicates a company's readily available financial assets exactly match its current short-term liabilities.