![]() What is the current ratio, and what does it mean? On December 31, a company has the following balances and gross working capital:Ī company has $2,000,000 of current assets, while its current liabilities are $1,000,000. In contrast to net working capital, gross working capital is synonymous with current assets, particularly those current assets that are either cash or cash equivalents or that will be converted to cash within a short period of time (i.e., in less than one year).īelow is a list of the components of gross working capital. ![]() Working capital management is accomplished through Well-run companies make effective use of current liabilities to finance an optimal level of current assets and maintain sufficient cash balances to meet short-term operating goals and to satisfy short-term obligations. In summary, working capital management helps a company run smoothly and mitigates the risk of illiquidity. One very important aspect of working capital management is to provide enough cash to satisfy both maturing short-term obligations and operational expenditures-keeping the company sufficiently liquid. Working capital management encompasses all decisions involving a company’s current assets and current liabilities.
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