What is Working capital?
Working capital (Definition)
Working capital is the difference between the company's current liabilities and its current assets. Cash, accounts receivable, and inventory are all current assets, while current liabilities include things like accounts payable, taxes, wages, and interest owed. When a business needs to purchase items or pay short term debts, it uses the working capital to do so. A positive working capital can help smooth out any changes in revenue – for example if a business has a great sales month, followed by a slow sales month, the positive working capital can help combat any financial issues in the slower month. When you know the value of your current assets and current liabilities, you can calculate the working capital. The formula to use is:
current assets – current liabilities = working capital