Working Capital Equation ? (1 Viewer)

[B-B-Becky]

Just a quick question - something's that's been bugging me for a while. I was just wondering which equation I should use if a question asks

"Calculate the Working Capital of..."

Are they asking for the Working Capital equation i.e.

Working Capital = Current Assets - Current Liabilities

Or are they asking for the actual ratio?

Working Capital Ratio = Current Assets / Current Liabilities


Thanks in advance

 

[the-derivative]

Just a quick question - something's that's been bugging me for a while. I was just wondering which equation I should use if a question asks

"Calculate the Working Capital of..."

Are they asking for the Working Capital equation i.e.

Working Capital = Current Assets - Current Liabilities

Or are they asking for the actual ratio?

Working Capital Ratio = Current Assets / Current Liabilities


Thanks in advance

Actually, I think that it really depends on the wording of the question. If it specifically asks for 'working capital' - do CA-CL, however if it's worded something along the lines of 'calculate the liquidity' or 'find the working capital ratio', or they give you the industry average in ratio form, then use CA/CL.

I actually lost a mark in my half yearlies for using the ratio instead of the CA-CL, because the marker said it specifically specified working capital.

 

[B-B-Becky]

Oh awesome, thank you! I'll keep that in mind, hopefully they'll be specific!

 

[Eddykungfu]

If it doesn't say RATIO then they are asking for Working Capital.

Which is Liquidity in $ terms.