Adequacy of Working Assets

A common method of determining the relative adequacy of the working assets is by contrasting these items with the corresponding working liabilities, or current obligations on the opposite side of the general balance sheet, which generally comprise all the liabilities in the general balance sheet except capital stock, funded debt, reserves, and surplus. This comparison may be done in the following manner:

Working Assets:
Cash Balances ....................................................$ 8,000,000.00
Accounts and Balances Receivable................. 13,000,000.00
Materials and Supplies ..........................................6,500,000.00
Total Working Assets .........................................$27,500,000.00
Deduct,- Working Liabilities ................................10,500,000.00
Net Working Assets ...........................................$17,000,000.00

The item of net working assets, or net working capital, as it is called, is the reserve force in operating a business. It is, therefore, the leading factor in the test of financial strength.