Working Capital Management Working Capital Finance | Page 4

Working Capital Finance
It is the measure of the efficiency and the short term financial health of a
business. Method of how to find working capital is stated below and can
be understood by the following equation:
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Working Capital = Current Assets – Current Liabilities
The ratio of the working capital finance shows whether the company
possesses the short term assets to cover the short term debts of the business.
Anything below 1 indicates negative WC and anything over 2 indicates
company is not investing in the excess assets. The ratio between is 1.2 and
2.0 is considered adequate. If company fails to exceed its current asses
from its current liabilities, it could be well on its way to disaster and have
difficulty in paying back the short-term creditors.
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