Lesson 04 — Working Capital
Week 05 · Lesson 4 of 4 · Week 05 — Reading a Balance Sheet
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Working Capital = Current Assets − Current Liabilities It measures whether the company can pay its shortterm bills. "Daytoday operations chalane ke liye comp...
What is Working Capital?
Working Capital = Current Assets − Current Liabilities
It measures whether the company can pay its short-term bills.
🗣️
"Day-to-day operations chalane ke liye company ke paas kitna paisa hai."
Positive vs Negative Working Capital
| Scenario | Meaning |
|---|---|
| Positive (CA > CL) | Company has enough liquidity for daily operations |
| Negative (CL > CA) | Could be trouble... or a sign of supplier power |
Negative WC isn't always bad
Companies like Avenue Supermarts (DMart) run negative working capital — they sell inventory fast (cash from customers) but pay suppliers later. This is actually a sign of strength!
Working Capital Cycle
Buy raw materialson credit
Convert to finished goods
Sell to customers
Collect cash
Pay suppliers
↻ The cycle repeats — working capital is the cash tied up between paying and collecting.
The shorter this cycle, the more efficient the business.
Current Ratio
Current Ratio = Current Assets / Current Liabilities
- > 1.5 = comfortable
- 1.0 – 1.5 = adequate
- < 1.0 = potential liquidity risk (or negative WC business model)
Key takeaway
Working Capital is about survival. A profitable company can still fail if it runs out of cash to pay daily bills.