What is the best formula for working capital?

The best formula for working capital is perhaps the most common, which are the current assets minus the current obligations. This formula is common because the owners and managers of companies can use the information found in their balance sheet to calculate working capital. Inventors and other parties involved parties can also use this formula because the necessary numbers are found on the financial statements of the company published for public use. Publicly held companies must also undergo audits, which are external reviews of the company's financial information that ensures that the financial statements are accurate and valid. Current obligations are similar to current assets, because short -term financial obligations such as payable accounts, payable notes and short -term loans that require full payment for the next 12 months. Current assets of less current obligations are the best formula for working capital because it measures the ability of the company to satisfy the upcoming financial needs. Owners andPublic managers can focus on these other items to determine which part of the working capital is lagging or far from others. Companies using this decision -making formula often use these other formulas to increase their understanding of the company's financial data.

In the best formula for working capital - current assets of fewer current obligations - owners of businesses and managers can review outstanding days, paid days and days payable. These three items form a cash conversion cycle that, how quickly the company can convert supplies and account receivables that work in a tandem with the best formula for working capital.

In order to calculate the sales of stocks, the owners and managers can divide the end of the annual inventory by ending the costs of the goods sold 365 days a year. This shows how fast the company will turn into a sales salesJ, with more favorable lower numbers. Days outstanding days indicate how long it takes to withdraw cash from the sale of the account. This formula is divided by the total time of sale of the loan, which the number of days for the collection of receivables. Again, there is a lower number of evidence that the company takes less time to generate cash from the sale of the account. For a payable outstanding formula, it is common accounts due to the cost of sale, the number of days to pay accounts. A higher number may be better because it means that companies take a longer period of time to pay a business creditor. However, for too long, you may have the company's credit status for these companies.