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Conclusion

Current ratio and working capital are both important financial measures for business owners that compare current assets and liabilities. Understanding what both indicate about your company, and tracking them so you can respond to changes, can help you improve your business’s operations.

 

Now that you know the difference between working capital and current ratio, you might be interested in ways to increase working capital of your business. Visit our article about the best working capital loans to discover new funding opportunities.

Best Working Capital Loans

FAQ

Does working capital change?
Yes, working capital can change over time as your current assets and current liabilities change.
What is the working capital ratio?
Working capital ratio is another term for current ratio, finding how your current assets compare to current liabilities.
How does the working capital turnover ratio differ from the current ratio?
Working capital turnover ratio measures how effectively a company turns its assets into sales that generate income. Current ratio, on the other hand, compares assets to debts.
What will cause a change in working capital?
Working capital can change when a company’s current assets, such as inventory or cash, or current liabilities, such as accounts payable, change.
How do you calculate your working capital requirement?
To calculate your working capital requirement, determine your desired working capital ratio, then multiply your current liabilities by that ratio to find the required current assets to generate the necessary working capital.

Finally, subtract your current liabilities from the required current assets to find the working capital requirement based on your desired ratio.

About the Author

TJ Porter

TJ Porter

Personal Finance Writer

I have in-depth experience in reviewing financial products such as savings accounts, credit cards, and brokerages, writing how-tos, and answering financial questions both simple and complicated.

More about me

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