Working Capital
Select Equity |
Working Capital | = | Current Assets | - | Current Liabilities |
Working Capital In A Nutshell
Typically you want to see a company have a higher working capital number because that means the liabilities are not weighing the company down as much as it could. There are many avenues you can take this particular number and equations, so let us pick it apart and find what you may want to be looking for.
Working capital is the current assets minus the current liabilities, and this number can be both positive or negative depending on the numbers populated in the equations. It is important to understand what goes into these types of formulas because you can then begin to pick it apart and pinpoint what causes the final number and that can potentially unearth different issues with a company.
Closer Look at Working Capital
First are current assets and an asset is anything the company is using to generate revenue or house the business. Assets are the same across some industries, but typically they differ from company to company. A manufacturing firm will have different assets compared to a start up in Silicon Valley. When researching the assets, you want to know if they are in good working order and could potentially be liquidated in the event of a bankruptcy or financial distress.
Second are current liabilities and this encompasses the debt in a company, both long term and short term. If you look at debt, you want to understand why the debt is there in the first place. A reason could be the company is growing a needed the funds to purchase more assets and that is an acceptable answer. What you do not want is the company getting loans to pay off existing debt holders because that can signal a cash flow problem, which could ultimately bring down the business.
Bringing it all together, you want the working capital number to be as large as possible really, because that indicates there is little to no debt on the books and cash flow should not be an issue. However, it may be uncommon to find a business with no debt as many large companies have it for several of reasons. Be sure to fully understand the company’s intent and then move forward from there. If you get stuck, reach out to an investing and trading community as they can give you ideas on how to implement these numbers and gear it towards your current setup. If all else fails, reach out to an investing professional and they should be able to help you out. Working capital will be in almost all financial reports and should be in your toolbox.
All Fundamental Indicators
Building efficient market-beating portfolios requires time, education, and a lot of computing power!
The Portfolio Architect is an AI-driven system that provides multiple benefits to our users by leveraging cutting-edge machine learning algorithms, statistical analysis, and predictive modeling to automate the process of asset selection and portfolio construction, saving time and reducing human error for individual and institutional investors.
Try AI Portfolio ArchitectOther Consideration for investing
Competition Analyzer Analyze and compare many basic indicators for a group of related or unrelated entities | |
Correlation Analysis Reduce portfolio risk simply by holding instruments which are not perfectly correlated | |
Portfolio Optimization Compute new portfolio that will generate highest expected return given your specified tolerance for risk | |
Sign In To Macroaxis Sign in to explore Macroaxis' wealth optimization platform and fintech modules | |
Premium Stories Follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope | |
ETF Categories List of ETF categories grouped based on various criteria, such as the investment strategy or type of investments | |
Portfolio Analyzer Portfolio analysis module that provides access to portfolio diagnostics and optimization engine |