Working Capital

What is Working Capital?

Working capital is the difference between a company’s current assets (such as cash, accounts receivable, and inventory) and its current liabilities (such as accounts payable and short-term debt). It represents the liquidity available for day-to-day operations and is a key indicator of a business’s financial health and operational efficiency.

Managing Working Capital

  • Improving Receivables: Shortening the time it takes to collect payments from customers.
  • Optimizing Inventory Levels: Reducing excess inventory to free up cash.
  • Extending Payables: Negotiating longer payment terms with suppliers.

Related Terms and Concepts

Liquidity, cash flow, current assets, current liabilities