What does Working Capital Include?
Working capital means capital available with the company to meet its current and short-term obligations and to run daily operations. The difference between the current assets and current liabilities of the company is working capital. It includes the following:
1. Current Assets: Current assets are those assets that are highly liquidable. Current assets include the following,
- Bills Receivables: Money owed to the company by customers for goods or services delivered on credit.
- Short-Term Investments: Investments that can be quickly converted to cash within one year.
- Prepaid Expenses: Payments that are made in advance for goods or services that are to be received in the future are prepaid expenses.
- Cash and Cash Equivalents: Money in the form of physical currency, cash at the bank, and highly liquid investments with a short maturity period.
2. Current Liabilities: Current liabilities are short-term financial debts that a company needs to pay within one year. Current liabilities include:
- Accounts Payable: Amounts owed by the company to suppliers and vendors for goods or services received on credit.
- Short-Term Debt: Debt obligations with a maturity period of one year or less.
- Accrued Liabilities: Expenses that have been incurred but not yet paid, such as accrued wages or utilities.