Working Capital
From Open Risk Manual
Definition
Working Capital are the financial resources invested by a business in financing its current trading operations usually expressed as the difference between Current Assets (receivables, inventory and operating cash balances) and Current Liabilities (accounts payables, tax payable and short term debt)
Role in Credit Risk Assessment
The Z-score model of Altman used five ratios and working capital was one of the metrics used:
- working capital/total assets
- retained earnings/total assets,
- EBIT/total assets
- market value equity/BV of total debt,
- sales/total assets
