Working Capital
Current assets minus current liabilities.
Working capital measures the short-term financial resources available to fund daily operations. Positive working capital means the business has enough liquid assets to cover near-term obligations; negative working capital signals potential trouble paying bills. Seasonal businesses often experience working capital fluctuations that require planning.
Formula
Working Capital = Current Assets − Current LiabilitiesExample
A retailer has $120,000 in current assets and $80,000 in current liabilities, providing $40,000 in working capital to fund inventory purchases and cover operating expenses.
Why It Matters for Your Business
Insufficient working capital is one of the most common causes of business failure—even profitable companies can collapse if they can't pay short-term bills.
Practical Tips
- •Track working capital monthly and set a minimum threshold you won't drop below.
- •Negotiate longer payment terms with suppliers and shorter terms with customers to improve working capital.
More Cash-flow Terms
Burn Rate
The rate at which a company spends cash monthly.
Cash Flow
The movement of money in and out of a business.
Cash Flow Forecast
A projection of expected cash inflows and outflows.
Cash Flow Statement
A financial statement showing cash movements from operations, investing, and financing.
Free Cash Flow
Cash from operations minus capital expenditures.
Related Financial Guides & Resources
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