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Definition

Working Capital

All the short-term assets (like cash), marketable securities, receivables, and inventory of a firm that are used in daily operations are defined as Working Capital.

According to John J. Hampton, “Working capital may be defined as all the short-term assets used in daily operations.”

According to John J.C. Van Horne, “There are two major concepts of working capital net working capital and gross working capital. The difference between current assets and current liabilities is called net working capital. On the other hand, gross working capital means the firm’s investment in current assets, marketable securities, receivables and inventory.”

Working capital is a measure of a company’s liquidity, computed as current assets minus current liabilities. It is the excess of current assets over current liabilities.

 

Working capital = Current assets – Current liabilities

 

Working capital is the current assets of a business firm (consisting principally of cash, accounts receivable, inventory, and other assets normally expected to roll over into cash within a year); some authorities define working capital as equal to current assets minus current liabilities.

Working capital is the current assets of a business firm (consisting principally of cash, accounts receivable, inventory, and other assets normally expected to roll over into cash within a year).

 

Use of the Term in Sentences

  • If the current liabilities become more than current assets, the working capital takes a nosedive and the business may soon be on the verge of going bankrupt.

 

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