Working Capital Research Paper Example | Topics and Well Written Essays - 250 words

Working Capital - Research reputation ExampleIf the incumbent asset of the profligate was less than the flow rate liabilities, this will mean that the firm has a deficit working capital and the firm will not be in a baffle to convert its asset into cash even if the company is making profits. (Livingst unmatchable 2002)It is defined as the companys ability to meet its short term covenants. These means that the higher the ratio the more liquid is the firm. The current ratio of a firm is calculated as a current asset divided by the current liabilities, the interpretation on these is that if the current asset of a firm is twice the current liabilities, whence the firm is considered to have a significant good short term financial strength. But if the firms current asset atomic number 18 less than the current liabilities of the firm, then the result will be a firm having a problem in meeting its short term financial problem.Therefore, facial expression at the balance sheet of orig inal company the current ratio is as follows 1.97 in 2001, 1.95 in 2002, 1.83 in 2003 these shows that the company is in a position of meeting its short term financial obligation for the ratio is a positive figure and the current asset are approximately twice the current liabilities.These are short term loan and have a short maturity usually one year or less, in the balance sheet these amounts are indicated along the current liabilities section. They are chiefly due within a year, if a company has more short term debt than the cash or investment to cover the bed payment then the firm will be forced to harbor for more debt and this will be disadvantageous for the firm financially. (Droms 1990)Based on the presented balance sheet of superior company its short term debts are 1,200 in 2001, 1,300 2002 and 1,450 in 2003. Meaning therefore, the firms short term debt are less than the cash of the company and hence, the company has no intention of acquiring more debt for it is able to pa y for the debt it has.These are