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The Working Capital category examines your reserves. You do not want too much or too little working capital. There are three criteria:
- You earn 50 points if your Current Ratio is greater than 2.0.
- You earn another 50 points if your Days of Working Capital lies between 30 and 90 days.
- You lose your Working Capital points if you had an Emergency Loan.
Working Capital = Current Assets minus Current Liabilities
Current Ratio = Current Assets / Current Liabilities = (Cash + A/R + Inventory) / (A/P + Current Debt)
Days of Working Capital = Working Capital / (Sales/365)
For example, in the sample below, you would earn 50 points for a Current Ratio of 3.2, another 50 points for a Working Capital Days of 65, and you would keep the points because you avoided an Emergency Loan.
ASSETS ($000) LIABILITIES & OWNER'S EQUITY Current Assets Liabilities Cash $1,260 Accts Payable $6,291 Accts Receivable $7,522 Current Debt $3,500 Inventories $22,388 Current Liabilities $9,791 Current Assets $31,170 Long Term Debt $39,000 Total Liabilities $48,791 Fixed Assets Plant & Equip. $113,800 Owner's Equity Accum. Deprec. ($45,900) Common Stock $18,276 Total Fixed Assets $67,900 Retained Earn. $32,003 mall;">Total Equity $50,279 TOTAL ASSETS $99,070 TOTAL LIAB. & O.E. $99,070 Working Capital $21,378 Current Ratio 3.2 Sales ($000) $120,000 Days of Working Capital 65.0
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