Use the appropriate formula to calculate working capital, then discuss the business’s current financial liquidity position. Does the business have sufficient working capital on hand to address bills to suppliers? Will there be potential cash inflow at the end of the year?

Working capital | principles of finance | Southern New Hampshire University

The formula for calculating working capital is Current Assets minus Current Liabilities. Assume the business in question has $500,000 in current assets and $300,000 in current liabilities. The resulting calculation would be $500,000 – $300,000 = $200,000 of working capital on hand.

Based on this result it appears that the business does have sufficient liquidity to address bills to suppliers as their current assets exceed their current liabilities by a significant amount. However, it is important to consider other factors such as potential cash expenses over the next few months or any outstanding payments which may come due – before making any definitive conclusions.

In terms of potential cash inflow at the end of the year – this largely depends on how successful sales/operations are over that period & if there will be any one-off events such as mergers/acquisitions etc., which could affect incoming funds significantly. Therefore businesses must factor these potential scenarios into account when forecasting future cash flows & formulating appropriate strategies moving forwards.