Working Capital

Working capital measures a company’s liquidity, efficiency and its financial well-being in the short term. Working capital is calculated by subtracting a company’s current liabilities from its current assets. The working capital ratio (Current Assets/Current Liabilities) shows whether or not a company has enough assets to pay back its short-term debt. A ratio below 1 is negative working capital, while a ratio above 2 shows that the company isn’t investing extra assets.