Accounting word of the week

Today, we are looking at the word Working Capital. Working Capital equals current assets less current liabilities. Working Capital serves as a safety cushion to creditors.

A couple of things to note here:

1. A higher balance is needed when the company has a problem borrowing on short notice.

2. A higher balance, or an excessive balance working capital, may be bad because funds could be invested in concurrent assets for a greater return.

Working capital = current assets - current liabilities