Current Assets Minus Current Liabilities Flashcards, test questions and answers

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What is Current Assets Minus Current Liabilities?

Current assets minus current liabilities is a measure used to evaluate the financial health of a company. This figure shows how much liquidity, or cash, a company has available to finance its operations. A positive figure indicates that the company has more assets than liabilities and is in good financial health. A negative figure indicates that the company has more liabilities than assets and may be in need of additional financing or restructuring. The formula for calculating current assets minus current liabilities is: Current Assets – Current Liabilities = Net Working Capital. For example, if Company X has $1 million in cash and accounts receivable, $500 thousand in inventory, and $200 thousand in short-term debt, then their net working capital would be calculated as follows: 1 million + 500 thousand 200 thousand = 1.3 million. This means that Company X has $1.3 million more in current assets than they have in current liabilities and are considered to be financially healthy at this time. It’s important to note that this ratio doesn’t necessarily indicate whether a company will be successful or not; rather it’s an indicator of its financial strength at a particular point in time which can give investors an idea of how likely the business is to survive economic downturns or other unforeseen events without needing additional financing support. Long-term debt should also be taken into account when assessing overall financial health; however, short-term debt typically carries less risk since it must typically be repaid within one year from the date of issue whereas long-term debt may extend out for several years or even decades before repayment is due. Companies with higher levels of net working capital are generally considered better positioned financially than those with lower levels as they have more potential revenue sources available for future investments and growth opportunities.