What causes an increase in working capital?

An increase in working capital happens when your assets go up and your liabilities go down over a specific period of time. This can happen because you’ve paid down debt or your company has grown and earns more from sales. 

Is an increase in working capital good?

Yes, this means that a company is steadily increasing its assets. It’s a sign that the business has successfully been managing its finances. 

What causes working capital to decrease?

Working capital decreases when liabilities go up and outpace your assets. If you suddenly need to take on debt to purchase new equipment or you have a particularly slow year and need to take on debt to keep your head above water, your liabilities will quickly tick up, decreasing how much you have in working capital. 

How to forecast a change in working capital?

While you can’t always anticipate your liabilities and when you may need to take on debt, you can control your assets, which can help you forecast a change in your working capital. If you expect to grow your sales, raise prices, pay off debt, or make any other financial move that affects your business in a positive way, you can often assume that this will raise your working capital. 

About the Author

Christopher Murray

Christopher Murray

Personal Finance Expert

Christopher Murray is a professional personal finance and sustainability writer and editor who enjoys writing about everything from budgeting and saving to unique investing options like SRI and cryptocurrency.

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