.svg)
Working Capital
The difference between current assets and current liabilities, representing the capital available for daily operations.
Formula
Working Capital = Current Assets - Current Liabilities
Working Capital Ratio = Current Assets / Current Liabilities
Definition
What is Working Capital?
Working capital is the money available to fund day-to-day operations. Positive working capital means you can cover short-term obligations and invest in growth. Negative working capital may signal liquidity problems.
Working Capital Management
Too little working capital creates cash crunches. Too much means inefficient asset deployment. The goal is having enough to operate smoothly while not tying up excess capital.
Working Capital Cycle
Cash flows through inventory, then receivables, then back to cash. Managing this cycle efficiently reduces the working capital needed.
Example
Company balance sheet:
- Cash: $150,000
- Receivables: $200,000
- Inventory: $100,000
- Payables: $120,000
- Short-term Debt: $80,000
Current Assets = $450,000
Current Liabilities = $200,000
Working Capital = $450K - $200K = $250,000
Related Terms
Explore other financial terms and metrics
Get complete financial clarity in under 10 minutes. No more broken spreadsheets, no more QuickBooks chaos—just the insights you need to scale with confidence.
