If a company has high working capital, it has more than enough liquid funds to meet its short-term obligations. Working capital, also called net working capital, is a liquidity metric used in corporate finance to assess a business’ operational efficiency. It is calculated by subtracting a company’s current liabilities from its current assets.
Current assets are highly liquid assets, meaning they can be converted to cash within a year. Typically, the current asset entry on a company’s balance sheet includes the value of any cash on hand; checking and savings accounts; and marketable securities such as stocks, bonds and mutual funds. It may also include a company’s inventory, which is to be sold within the next year, and accounts receivables, which are debts owed by customers who have not yet paid for goods or services rendered.
