What does positive working capital indicate about a company's financial health?

Positive working capital indicates that a company has more current assets than current liabilities, which suggests that the company is in a good position to meet its short-term financial obligations. This surplus of assets over liabilities means that the company is likely to have enough resources to pay off debts and other liabilities as they come due, thus demonstrating financial stability.

By having positive working capital, a company can manage its daily operations more effectively, ensuring it can cover operating expenses and short-term debts without facing liquidity issues. This scenario is crucial for maintaining trust with suppliers and creditors and supports the overall health of the business in the short run.

While it may also imply the possibility for expansion, increases in dividends, or improved cost control, these outcomes are not directly guaranteed by positive working capital. Positive working capital fundamentally reflects the company’s ability to fulfill its immediate financial obligations, making it an essential indicator of financial health.