Working Capital is also known as Net Working Capital. Working Capital is said to be the difference between a company’s current assets and current liabilities. Current assets of a company are its accounts receivables, cash, inventories of finished and unfinished goods. Whereas a company’s current liabilities include debts outstanding and accounts payable. So, the question is working capital a current asset stands false here.
Working Capital serves as a measure of a company’s operational efficacy, short-term financial health, and its liquidity. Higher the working capital of a company, higher is the potential of the company to grow by investing more. This happens when the current assets are higher than the current liabilities of the company. If the current liabilities are higher than the current assets of the company, the company is considered to be in a position where it has no funds to invest or pay its debts. Such a company may also go bankrupt.
Current assets are the assets that offer value or returns within the period of one year or 12 months. So if you ask, is net working capital a current asset,
then the answer would again be no. Working Capital is a representation of the difference between current assets and current liabilities and not a current asset in itself.
Net Working Capital is an important aspect of a company because it determines its solvency of the company. If the working capital is not maintained the company may become insolvent in the future due to a lack of cash or cash equivalents.
I hope now you get an idea of is working capital a current asset,
or not.
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Is Working Capital A Current Asset?
Megha
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3 Year
2022-03-30T19:05:33+00:00 2022-03-30T19:05:34+00:00Comment
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