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working capital
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Definition
Current assets minus current liabilities. Working capital measures how much in liquid assets a
company has available to build its business. The number can be positive or negative, depending
on how much debt the company is carrying. In general, companies that have a lot of working
capital will be more successful since they can expand and improve their operations. Companies
with negative working capital may lack the funds necessary for growth. also called net current
assets or current capital.

Use working capital in a sentence

During the process of growing a company it is important to have a positive working capital
number to ensure that you have funds on hand to expand.
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Popular 'Accounting' Terms

current ratio
equity
working capital
asset
EBITDA
revenue
net income
negotiable
net profit
net worth

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hodfih Related Terms

capitalise
return on net assets
working capital initiative
capital
free cash flow to equity
working capital requirement
Piotroski score
trade working capital
free cash flow for the firm

Related Terms

capitalise
return on net assets
working capital initiative
capital
free cash flow to equity

working capital requirement

Piotroski score
trade working capital
free cash flow for the firm

Related Terms

capitalise
return on net assets
working capital initiative
capital
free cash flow to equity
working capital requirement
Piotroski score
trade working capital
free cash flow for the firm

Related Terms

capitalise
return on net assets
working capital initiative
capital
free cash flow to equity
working capital requirement
Piotroski score
trade working capital
free cash flow for the firm

Mentioned in these terms

working capital loan

negative working capital
trade working capital
working capital initiative
working capital requirement

Nearby Terms

worker director
Workers Compensation
Workers Compensation...
working capital init...
working capital loan
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Working Capital
What Is Working Capital?
Working capital is defined as the difference between current assets and current liabilities.
Current assets are the most liquid of your assets, meaning they are cash or can be quickly
converted to cash. Current liabilities are any obligations due within one year. Working capital
measures what is leftover once you subtract your current liabilities from your current assets, and
can be a positive or negative amount. The working capital is available to pay your company's
current debts, and represents the cushion or margin of protection you can give your short-term
creditors.
Positive Working capital is essential for your company to meet its continuous operational
needs. The availability of working capital influences your company's ability to meet its trade and
short-term debt obligations, as well as to remain financially viable. If your current assets do not
exceed your current liabilities, you run the risk of being unable to pay short term creditors in a
timely fashion.
Businesses that are seasonal or cyclical often require more working capital to stay afloat during
the off season. Although your company may make more than enough to pay all its obligations
yearly, you must ensure you have enough working capital at any one time to meet your short
term obligations. For example, a company may do significantly more business over the holidays,
resulting in large payoffs at the end of the year. However, the company must have enough
working capital to buy inventory and cover payroll during the off season as well, when revenues
are lower.
Related Articles:

article Liquidating Assets

article Planning and Goal-Setting for Small Businesses

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