Working Capital Calculation Example Help

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What is Working Capital?


Working Capital is the difference between current assets and current liabilities of a firm. Current assets are those assets that are expected to turn into cash within one year or one business cycle whichever is less. Current Liabilities are those liabilities which a firm expects to pay within a year or one business cycle whichever is less. Working capital determines the liquidity of a company. The formula to calculate working capital is

Working Capital= current assets-current liabilities

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Working Capital Calculation Example Explanation


let us understand the Working Capital Calculation with help of an example.
Example: Balance Sheet of a company as on 31st Dec 2014.

  • Current Liabilities

    Current tax payable

Security Deposit $10000
Outstanding Salary $6000


  • Current Assets


Assets for sale $12000
Inventories $11000
Cash $25000
Working Capital = current assets-current liabilities

(Assets for sale+ Inventories + Cash) – (Current tax payable +Security
Deposit + Outstanding Salary)

= ($12000+$11000+$25000) – ($14000+$10000+6000)
= $48000 – $30000

Since the current assets are more than the current liabilities, the working capital of the company shows that the company can pay off it current liabilities easily and can even meet its other requirements with left over cash.

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