The investment banking interview question we’re going to go over is “what is working capital and what are some examples?” Working capital is a commonly misunderstood concept. So let’s make sure you can articulate it clearly and succinctly in an interview. Here’s how you can craft your answer.
“Working Capital measures a company’s liquidity at a specific point in time. It measures liquidity by comparing how much cash the company can get from its assets with how much cash the company has to pay for its liabilities in the next 12 months. Naturally, if the company receives more cash than it has to pay, then it’ll have sufficient liquidity.
Some examples of Working Capital are Accounts Receivables, Inventory, Accounts Payables, and Prepaid Expenses.”
That’s all you have to say for this question: “What is working capital and what are some examples”. As always, cut to the chase and get straight to the point. The biggest mistake candidates make with this question is the inability to eloquently articulate what exactly working capital is and instead have to concoct an extended example to demonstrate working capital.