Working Capital = Current Assets – Total Short-Term Liabilities
- It represents the safety margin of the company’s short-term creditors.
- The higher its value, the more favorable the company’s position is since it could meet both the payments of its current liabilities, its fixed costs, the interest and dividends due, and the absorption of any losses that may arise.
- The indicator is evaluated by banks and creditors to grant credit to the company.
Business actions to improve the Index
- Increase in Total Current Assets, i.e. Inventories, Receivables and Cash without a corresponding increase in liabilities
- Reduce Total Short-Term Liabilities through repayment and reduction in Cash, either through Restructuring of Debt in favor of Long-Term
