Working capital

Working capital is the difference between a company’s current assets – such as cash, accounts receivable/customers’ unpaid bills, and inventories of raw materials and finished goods – and its current liabilities, such as accounts payable and debts. It is a measure of a company’s liquidity, operational efficiency, and short-term financial health. If a company has substantial positive working capital, then it should have the potential to invest and grow.

The formula for Working capital is:

Working capital = Current assets – Current liabilities