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- This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
- January 6, 2022 at 4:10 am #645377johnbrianeMember
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Working capital indicates us that whther or not the company is able to settle its short term debts .
Can we say that if current assets are greater than current liabilities the working capital is high which is a good sign
and if current assets are lower than current liabilities the working capital will be low or negative and hence that’s not a good sign as the company might have trouble facing to settle its short term liabilities
?January 6, 2022 at 7:17 am #645387John MoffatKeymaster
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If the current assets are lower than the current liabilities, then the working capital is negative (not just low!!!) and this means the company has liquidity problems.
If the current assets are greater than the current liabilities, then they do not appear to have liquidity problems. However you cannot simply say that the working capital is ‘high’, just that it is positive. Nor can you say that it is necessarily a good sign – a company does not want the working capital to be too high because it does not earn money for the company.
It really does seem that you are not bothering to watch my free lectures because all of this is discussed in the lectures.
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