Dictionary / Financial statements
What Is Working Capital?
Working capital is the short-term money a company has to run day to day. It is current assets minus current liabilities.
How to calculate working capital
Current assets are cash, unpaid customer bills and inventory. Current liabilities are bills and debts due within a year. See assets and liabilities.
Positive vs negative
Positive working capital means the company has more short-term money than short-term bills. Negative can be a warning sign, but not always. Some strong businesses, like warehouse clubs, collect cash from customers before paying suppliers.
Why it matters
A growing company often needs more working capital to hold more stock and wait for customer payments. That ties up cash and can lower free cash flow. The current ratio shows the same idea as a ratio.
See it in real companies
Open a company to see what it sells and how it makes money.