How to Answer: What is working capital?
Advice and answer examples written specifically for a Finance job interview.
25. What is working capital?
How to Answer
Technically working capital Working Capital = Current Assest - Current Liabilities
In short It is Excess of Current Assets minus Current Liabilities which can be utilised as a Working Capital to run the Day today business.
Written by Bobbi Witt on July 19th, 2018
Entry Level
"Working capital is defined as current assets minus current liabilities; it tells the financial statement user how much cash is tied up in the business through items such as receivables and inventories and also how much cash is going to be needed to pay off short term obligations in the next 12 months."
Written by Bobbi Witt
Experience
"Working capital is a common measure of a company's liquidity, efficiency, and overall health. Because it includes cash, inventory, accounts receivable, accounts payable, the portion of debt due within one year, and other short-term accounts, a company's working capital reflects the results of a host of company activities, including inventory management, debt management, revenue collection, and payments to suppliers.
Positive working capital generally indicates that a company is able to pay off its short-term liabilities almost immediately. Negative working capital generally indicates a company is unable to do so. This is why analysts are sensitive to decreases in working capital; they suggest a company is becoming overleveraged, is struggling to maintain or grow sales, is paying bills too quickly, or is collecting receivables too slowly.
One of the most significant uses of working capital is inventory. The longer inventory sits on the shelf or in the warehouse, the longer the company's working capital is tied up."
Written by Bobbi Witt