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Free Working Capital
Source:
Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority and you can order
it here)
The margin
or excess of current or quick assets over CURRENT LIABILITIES; also known
as net current assets, or just WORKING CAPITAL.
The amount in the aggregate of the free working capital is not
as valuable an indicator of liquidity of a business as the CURRENT RATIO,
or ratio of CURRENT ASSETS to current liabilities.
For example, a concern with current assets of $1,000,000 and current
liabilities of $500,000 has the same aggregate free working capital as
a concern with $1,500,000 in current assets in $1,000,000 in current liabilities,
but the first concern is obviously the stronger in liquidity, in view
of its 2:1 current ratio, as compared with 1.5:1 for the second concern.
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