Working Capital
Corporate Credit Analysis glossary · Financial Statement Analysis & Cash Flow Dynamics
Definition
Current assets minus current liabilities; positive working capital indicates short-term liquidity headroom. Negative working capital can be normal for cash-collection businesses (retail, software) but problematic in working-capital-intensive industries.
Working Capital in plain English
Working capital is the everyday cash cushion a business has to keep the lights on: take what it owns that turns into cash soon (like inventory and money customers owe it) and subtract what it owes soon (like bills due). If that number is positive, it can comfortably cover near-term bills; if negative, it might scramble. Interestingly, negative isn't always bad — a store or software company often collects from customers BEFORE it has to pay its own suppliers, like a lemonade stand that gets paid up front but pays for lemons next week — but for a factory that ties up lots of cash in materials, going negative is a real warning sign.
Learn these first
Related Corporate Credit Analysis terms
Corporate Credit Analysis practice questions · Corporate Credit Analysis flashcards · Corporate Credit Analysis study guide