We can define working capital as either money available to a company for its day-to-day operations or the difference between a company’s current assets and current liabilities.
A current liability is an obligation that will be due within one year of the date of the company’s balance sheet.
A current asset is a company’s cash and its other assets that are expected to be converted to cash within one year of the date appearing in the heading of the company’s balance sheet .
Formula to calculate working capital.
Example:
Below is a balance sheet used to calculate working capital.
Total current in the balance sheet is Sh. 3,800,000 and the total current liabilities is Sh. 80,000.
Therefore, the working capital is Sh. 3,720,000.
