# What are the components of working capital

## Working capital

The **Working capital**, in German often as **Working capital **called, is a **Balance sheet ratio**, which indicates how strong the financial strength of a company is. By definition, working capital is that **Current assets** minus the **short term liabilities**. This is used to control the key figure **Working capital management**.

Would you like to understand even more quickly what is hidden behind all these terms? Then watch our video for **Working capital** at!

### Working capital definition

The working capital is calculated from the current assets minus the short-term liabilities **(Working capital = current assets - short-term liabilities)**. A positive number means that a company's current assets cover its current liabilities.

The **Target value** of **Working capital** is, like the target value of the **Net working capital** (Net working capital),> 0 by the **liquidity** of the company. On the other hand there is one **negative value** (<0) before the current assets are not sufficient to cover the short-term liabilities. A negative value violates the **golden rule of accounting** and brings **Liquidity difficulties** and a difficult ability to act with itself.

The **Balance sheet ratio working capital**, which originally comes from American accounting, is thus a measure of the **financing**, **Solvency** and **credit-worthiness **of a business.

### Working capital management

The working capital should therefore if possible **positive** be. But not too big either. Because a value that is too high means that **Current assets are strongly tied up** is. It will **Less****efficient** used. The exact value that the key figure should assume must always also take into account the respective **Branch** and the **Business model **to be decided.

To** optimization** the financial supply chain can do the so-called **Working capital management** can be used. With the help of this, current assets and delivery liabilities **Taxes**in order to optimize the liquidity of a company. Working capital management aims to achieve the **Capital commitment** to **to reduce** and thus capital **more efficient** to use.

### Working capital ratio 1 - example

Let's calculate the for example **Working capital ratio**. The **Current assets** of our company is **200.000€**, the **short term liabilities** be **125.000€**. If we put these values in the formula, we get one **Working capital ratio 1** of **160%**. The **Target value of the WCR (1)** lies by **greater than 100%**. So is ours **calculated WCR (1)****positive** to rate.

**Example:**

### Working capital ratio 2 - WCR (2):

At the **Working capital ratio 2** will that **Working capital** by the **short term current assets** divided. This determines how high the proportion of current assets is that is financed over the long term. A value of approx. **30%** is mostly called **optimal** designated.

**Target value WCR (2):** >30%

### Working capital ratio 2 - example

Let's also look at a calculation of the working capital ratio 2 using a specific example: That **Working capital** of our company is **75.000€**, the **short term current assets** be **200.000€**. If we put these values in the formula, we get one **Working capital ratio 2** of **37,5%**. The **Target value of the WCR (2)** lies by **greater than 30%**. So is ours too **calculated WCR (2)****positive** to rate.

**Example:**

- Are TV shows too sexualized
- How do you find children's fashion designers
- What should everyone know about Alaska
- Have you ever been a drug dealer
- Why should my dog eat a rat?
- How much is the price for Salesforce for different apps
- Do operas contain lyric writing
- Which song just makes you cry
- How long could you survive on dialysis?
- Which engineering courses include math
- What are indicative sentences What are examples
- How to say toilet in Urdu
- When did the old world begin to end?
- How can I go kayaking in Lakshadweep
- Can haploid daughter cells divide again
- Accenture is an IT company
- What tastes bad about salt
- Can we ban anime?
- What are some good self-soothing techniques
- What is cloud governance
- What is the interview process in IOCL
- Why do I feel so lame
- What are 5 habits in my life
- How many types of domains are there