Working capital is a measure of both a company’s and its short-term financial health. working capital is calculated as The working capital ratio ( current assets + current liabilities) hint whether the company has enough short-term assets to cover its short-term debt. anything below 1 indicates negative w-c . while anything over 2 means that the company is not investing excess. most believe that a ratio between 1.2 and 2.0 is sufficient . also known as ” networking capital”.
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Various Factors affecting working capital:
• Nature of business: generally working capital is higher in manufacturing compared to service based Company.
• Volume of sales: higher the sale, higher the working capital need.
• Seasonality: peak seasons for sales required more working capital
• Length of operating and cash cycle: longer the operating and cash cycle, more is the requirement of working capital