A company’s working capital is defined as its current assets minus current liabilities.
Current assets are cash, short-term receivables, trade debtors, inventory and other assets and claims on assets that are expected to convert into cash within a year.
Current liabilities are short-term debts such as trade creditors, accounts payable, accrued liabilities and other liabilities that are to be paid off within one year.
While assessing a company’s creditworthiness, banks also investigate the firm’s working capital ratio, or current ratio, which is defined as the ratio between the company’s current assets and current liabilities. While a relatively low current ratio indicates that the company is highly indebted, (a ratio lower than 1 indicates that the company’s current liabilities exceed its current assets). A relatively high current ratio denotes ineffective management, as this may imply that the company is not investing its excess cash or has too much inventory.
We at ALG &Associates(Thailand)Co.,Ltd. can assist you with your working capital financing requirements, which will give your business a boost for handling daily operations as well as pursuing long-term objectives.
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