GUIDELINES TO SELECT A COMPANY THROUGH ITS ACCOUNT BOOKS

Dear Readers, by incorporating the following ratios into a accounting analysis will give you an edge over general public to earn maximum returns.

Formula

NET WORKING CAPITAL

Net Working Capital: Receivables + Inventory-Payables [Increase in Net Working Capital (e.g. more inventories) ties up cash. It is an investment in the business]

If the Current Assets are increasing by MORE than Current Liabilities, then Company might be spending a lot on Inventory, might be waiting too long for customer payments, might be paying suppliers very quickly.

If the Current Assets are decreasing by MORE than Current Liabilities, then Company could be collecting lot of cash up front, might have no or minimal inventory or might just be delaying payment to suppliers

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