Working Capital can be defined as how liquid the assets of a business / organisation is.  It is the operational liquidity.

It is calculated as:

Working Capital = Current Assets – Current Liabilities.

If the above calculation produces an amount less than 0 it may indicate that the business will be unable to meet its short terms debts.

The Current Ratio is Current Assets / Current Liabilities

It is a measurement involving your working capital.  It measures whether or not your business has enough resources to pay its debts over the next 12 months.  If the ratio calculates an amount less than 1 this indicates that the business may have problem meeting its short term debts, i.e. debts less than 1 year.
 

Having control of your Working Capital directly affects your cash flow.

If you would like to discuss further please contact us:
McNamara and Co - Chartered Accountants, located minutes from the Melbourne CBD
www.mcnamaraandcompany.com.au/contact-us
Phone +61 3 9428 1062
Email admin@mcnamaraandco.com

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