Company Ratios And Analysis Of Working Capital

1463 WordsMar 7, 20166 Pages
Company Ratios and Analysis Working capital is the amount that a company’s current assets exceeds its current liabilities and is a measure of the company’s ability to pay its debts and liabilities if they were to all become due in the near future. Assets and liabilities are considered “current” if the asset is able to be converted into cash within one year and if the liability must be paid within one year (Bagul, 2014). Both Google (now Alphabet) and Microsoft hold working capital in sums that significantly exceed $50 million dollars, $61 million and $74 million respectively. These large sums are on account of the fact that both companies hold higher than normal levels of cash and investments (securities) when compared to most large corporations. While there is no set goal for how much working capital a company should hold, these numbers provide us with two clear conclusions. First, neither Google nor Microsoft currently have any risk of not being able to pay their debts on the short-term horizon because they have way more than enough current assets to cover even the most dramatic call of their debts. On the other hand, this high amount of working capital shows that the company could be investing its assets in a more efficient manner, rather than allowing them to sit unutilized. The current ratio is simply a different way to analyze the same elements contained in calculating working capital. This is calculated by dividing the company’s current assets by its current

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