Differences between Working Capital and EBITDA
Networking capital, on the other hand, is the actual difference between a company’s current assets and short-term liabilities.
This equals a business’s operating income plus amortization expenses and depreciation. The operating income of a company is equal to its gross profits minus general, administrative and selling costs. Gross profit is the difference between a company’s revenues and the costs which can be directly attributed to the manufacturing of goods sold.
The terms “amortization” and “depreciation” refer to the allocation of costs of fixed assets, carried out in gradual phases over these assets’ useful lives. By getting rid of these non-cash costs, along with taxes and interest, some people argue that EBITDA gives a more precise picture of a company’s operating performance.
Business Working Capital
This shows the short-term solvency position of a company. Companies require adequate working capital to pay salaries and purchase materials to manufacture products and deliver services before getting cash payments from their customers. A positive working capital figure means that current assets exceed current liabilities, but a negative one means the exact opposite of that. The latter figure means that the organization may not be in a position to settle its short-term invoices.