Two Companies With High Working Capital

Shazir Mucklai  |

Financial stability is what every value investor looks for when research prospective investments. One way to assess financial stability is to assess a company’s working capital. Working capital, from a holistic perspective, analyzes if a company has enough assets on hand to cover its liabilities over the course of the next year. In fact, working capital is calculated based off taking current assets and then subtracting current liabilities.

Furthermore, working capital can be found through a company’s current ratio. A current ratio of 1 implies that the company can cover its liabilities and debt obligations for the next year. However, a current ratio of less than 1 implies that the company is relatively unstable.

Goodyear Tire (GT)

The company is famous for their product lineup of tire for vehicles, trucks, farming vehicles and even airplanes. In 2016, Goodyear Tie traded with a price-to-earnings (P/E) ratio of 2.72 and a forward P/E ratio of 7.38. Shares of Goodyear Tires are undervalued considering its P/E to growth (PEG) ratio of .25, price-to-sales (P/S) ratio of 0.45 and price-to-free cash flow (P/FCF) ratio of 8.54. Goodyear Tire has a strong return on equity (ROE) of 72.6 percent and a profit margin of 16.8 percent.

Additionally, over the past three years, Goodyear Tire has had working capital of $3.18 billion, $2.62 billion and $2.99 billion, in 2012, 2013, and 2014, respectively. Goodyear currently has a current ratio of 1,7, which highlights the continued high working capital flow. With this ratio, Goodyear should have no problem paying its liabilities and spending capital to accelerate its growth whilst not having to take out massive business loans.

Gilead Sciences (GILD)

Gilead Sciences is a biotechnology company that specializes in areas that face little treatment options. In 2016, the firm traded with a P/E ratio of 7.91 and was caught up in the overall stock market selloff. Furthermore, the company has a forward P/E of 7.15 and a PEG ratio of 0.54. The company is well known for having a strong ROE of 102 percent and profit margins more than 53.8 percent.

The company has seen a massive spike in its working capital over the past couple of years. In 2013, Gilead Sciences had full-year working capital of $590 million. However, this number spiked to $411.95 billion in 2014 and $24.13 billion in 2015. Currently, the firm has a current ratio of 2.8 which indicates that it has a solid amount of financial stability and has solid cash reserves set aside for mergers and acquisitions as well as research and development.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


Symbol Name Price Change % Volume
GT The Goodyear Tire & Rubber Company 16.17 0.01 0.06 1,526,928 Trade
GILD Gilead Sciences Inc. 65.00 0.71 1.10 6,135,134 Trade



Symbol Last Price Change % Change





















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