Liquidity and Working Capital
1.Liquidity - Ability to convert assets into cash or to obtain cash to meet short-term obligations. 2.Short-term - Conventionally viewed as a period up to one year.
3.Working Capital - The excess of current assets over current liabilities.
Current Assets - Cash and other assets reasonably expected to be (1) realized in cash, or (2) sold or consumed, during the longer of one-year or the operating cycle.
Current liabilities - Obligations to be satisfied within a relatively short period, usually a year.
Working Capital - Excess of current assets over current liabilities
Widely used measure of short-term liquidity
Constraint for technical default in many debt agreements
Current Ratio – Ratio of Current Assets to Current Liabilities
Relevant measure of current liability coverage, buffer against losses, reserve of liquid funds.
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