Reply To: Describe using working capital limits.

Every business’s money to meet its financial obligation is called working capital. It includes office overheads, rent and salaries. If you are a business owner, you must track it from time to time to see if there is enough cash to cover all costs and drive the business forward. You can calculate available funds by subtracting your current liabilities from assets. If the answer is positive, your business has sufficient cash to cover the debts and short-term expenses. However, if the answer is negative, you will find it hard to meet ends. The working capital formula is:

Working Capital = Current Assets – Current Liabilities

For your better understanding, let me state with an example. If your business has 3,00,000 current assets and 2,00,000 current liabilities, your firm’s working capital is 1,00,000.