Definition
Working capital measures short-term liquidity and operational efficiency. Positive working capital means the company can fund operations and meet short-term obligations. Negative working capital may indicate liquidity stress but is normal for some business models (retail) with fast inventory turns.
Formula
Working Capital = Current Assets - Current Liabilities
Example
Current assets of $65M minus current liabilities of $45M equals $20M working capital. This provides a buffer for operations and unexpected expenses.
FAQ
What is Working Capital?
The difference between current assets and current liabilities.
How do you calculate Working Capital?
A common formula for Working Capital is: Working Capital = Current Assets - Current Liabilities
Why is Working Capital important?
Working Capital helps investors evaluate fundamental analysis and make more informed decisions.