Assessing Your Working Capital

Much has been written about working capital and its vital role in managing farm finances. Today, we explore from a practical and pragmatic perspective, things that can change - increase or decrease one’s working capital. The list isn’t all that long, but to understand the impact of each on farm liquidity puts you in position to better understand your farms’ financial position. Liquidity is a measure of ability to meet current cash-flow needs. Working capital (current assets minus current liabilities) is one of two pertinent measures of liquidity and is measured in dollars. The other pertinent measure of liquidity is the current ratio (current assets divided by current liabilities). Both certainly have a place in measuring and evaluating liquidity.