Working capital

What is working capital?

Working capital is the difference between current assets and current liabilities. It is determined as part of the long-term static liquidity analysis. The working capital largely corresponds to the 3rd degree liquidity, which is based on the ebankers rule, a requirement of American banks, according to which the current assets should be at least twice as large as the short-term borrowed capital. The following applies:

positive working capital

With positive working capital, the current assets exceed the short-term borrowed capital (in the example by 50 units). The higher the working capital, the more positive the liquidity situation can be assessed.

negative working capital

If the working capital is negative, the short-term borrowed capital exceeds the current assets (in the example this is 70 units).

The company has invested short-term funds long-term and risks temporary illiquidity. Although the current assets of German companies are rarely twice as large as the short-term liabilities, their liquidity does not have to be jeopardized.

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