The result you’re describing relates to variations of working capital metrics commonly used in finance and accounting to assess a company's liquidity and operational efficiency. Here's a breakdown of the key formulas you provided:
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Working Capital: \[ \text{Working Capital} = \text{Current Assets} - \text{Current Liabilities} \] This formula represents the difference between a company's short-term assets and its short-term liabilities, which indicates its ability to cover its short-term obligations.
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Working Capital Provided by Net Income: \[ \text{Working Capital Provided by Net Income} = \text{Net Income} - \text{Depreciation} \] This measures how much of the company's net income, adjusted for non-cash expenses like depreciation, is available to fund working capital needs.
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Working Capital from Operations to Total Liabilities: \[ \text{Working Capital from Operations to Total Liabilities} = \frac{\text{Working Capital Provided from Operations}}{\text{Current Liabilities}} \] This ratio provides insight into how much of the working capital derived from operational activities covers the company's current liabilities.
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Working Capital Ratio (or Current Ratio): \[ \text{Working Capital Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}} \] This ratio measures a company’s ability to pay off its short-term liabilities with its short-term assets. A ratio greater than 1 indicates that the company has more current assets than current liabilities.
Summary
In summary, this set of formulas provides various insights into a company's liquidity, focusing on how effectively it can utilize its working capital to meet short-term obligations. These metrics help investors and management understand the firm's financial health and operational efficiency.
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