Impressive Current Asset Less Current Liabilities
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That ratio is called the quick ratio.
Current asset less current liabilities. Examples of Current Assets Cash Debtors Bills receivable Short-term investments etc. The ideal position is to have more current assets than current liabilities and thus have a positive net working capital balance. It is computed by deducting the current liabilities from current assets.
Non Current Assets wrongly classified as Current OR Current liability wrongly classified as Non Current. Current Asset wrongly classified as Non Current OR Non Current liability wrongly classified as Current In this case the working capital of the organization is wrongly calculated on lower side. And we calculate it by taking current assets minus inventory then dividing this result by current liabilities.
Working capital can be negative if a companys current assets are less than its current liabilities. This will wrongly lower the current ratio. The figure can be positive or negative depending on how much debt the company is transporting.
For instance the current ratio may turn out to be 21. The major difference in both terms is on the basis of nature. Working capital is calculated as current assets less current liabilities.
A company collects 70 of its sales during the month of the sale 20 one month after the sale and 10 2 months after the sale. If a current ratio is less than 1 the current liabilities exceed the current assets and the working capital is negative. Gross working capital is equal to current Assets while Working Capital is calculated as CURRENT ASSETS MINUS CURRENT LIABLITIES.
Working capital measures how much in liquid plus as company has available to construct its concern. Negative working capital means the current assets are lesser than the current liabilities. Acid-Test or Quick ratio.
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