What does An Increase in Working Capital Mean

This is the second query from USA, after solving the query  "What does Positive Working Capital but Loss Mean?"

There are many meaning of it which we can tell in following way:-

1. It means you have sufficient cash or possibility of it.

2. It means no liquidity risk.

3. An increase in working capital means that you have done working capital management efficiently.

4. It means either value of current asset increased or decreased in the value of liabilities. Suppose, you have to pay somebody $ 100,000 within one year but he died in road accident before taking money from you and he was single, no claim had come from his family. So, be happy that your liability is no more and it will automatically increase your working capital.

5. If you want to the answer which you can prove it with your reasoning, then I can say only that just calculating of increase in working capital, you can not decide whether it is good or bad because, you should scan or scrutinize other factors of balance sheet, after this you can say it good or bad. If I use my experience, I can say that you should not keep a fixed concept regarding the effect of increase in working capital but you should be more flexible and watch all the factors which affect working capital.






Accounting Education: What does An Increase in Working Capital Mean
What does An Increase in Working Capital Mean
Accounting Education