The typical formula to calculate the working capital is current asset - Current liability. The current liabilities like creditor is a free financing so organization must avail the free financing ,however, on other hand current must be available to pay the current liabilities when they fall due.
Working Capital Requirement
Working capital requirement changes business to business. The other factor may be considered important while determining the working capital requirement includes the following
- Level of stock and availability of stock
- Supplier credit policy and business relationship
- requirement for effective operations
Current Ratio
The ration mainly depends on type of industry , however, in general a 2:1 ration is considered to be healthy. the underlying concept is that even after paying the current liabilities sufficient funds are available for operations.
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