Title: How Do You Calculate Working Capital?
Headings: How Do You Calculate Working Capital?
How Do You Calculate Working Capital?
Key Takeaways
Components of Working Capital
Current Assets
Current Liabilities
Working Capital
How to Calculate Working Capital
Working Capital Example: Coca-Cola
Does Working Capital Change?
What Working Capital Means
Special Considerations
Article Sources

Content: To reflect current market conditions and use the lower of cost and market method, a company marks the inventory down, resulting in a loss of value in working capital. Meanwhile, some accounts receivable may become uncollectible at some point and have to be totally written off, representing another loss of value in working capital. As such losses in current assets reduce working capital below its desired level, it may take longer-term funds or assets to replenish the current-asset shortfall, which is a costly way to finance additional working capital. Important
Working capital should be assessed periodically over time to ensure no devaluation occurs and that there's enough of it left to fund continuous operations. What Working Capital Means
A healthy business will have ample capacity to pay off its current liabilities with current assets. A ratio of above 1 means a company's assets can be converted into cash at a faster rate. The higher the ratio, the more likely a company can honor its short-term liabilities and debt commitments. A higher ratio also means the company can easily fund its day-to-day operations. The more working capital a company has, the less it’s likely to have to take on debt to fund the growth of its business. A company with a ratio of less than 1 is considered risky by investors and creditors since it demonstrates that the company may not be able to cover its debt if needed.