Free Working Capital
The margin or excess of current or quick assets over CURRENT LIABILITIES; also known as net current assets, or just WORKING CAPITAL. The amount in the aggregate of the free working capital is not as valuable an indicator of liquidity of a business as the CURRENT RATIO, or ratio of CURRENT ASSETS to current liabilities. For example, a concern with current assets of $1,000,000 and current liabilities of $500,000 has the same aggregate free working capital as a concern with $1,500,000 in current assets in $1,000,000 in current liabilities, but the first concern is obviously the stronger in liquidity, in view of its 2:1 current ratio, as compared with 1.5:1 for the second concern.
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