Working capital
Financial Accounting glossary · Financial Statement Analysis & Ratios
Definition
Current assets minus current liabilities.
Working capital in plain English
Working capital is a quick health check on whether a business can cover its short-term bills. You take its current assets — cash and things it will turn into cash within a year (like money customers owe it or inventory it'll sell) — and subtract its current liabilities, the bills due within a year. A positive number means it has enough on hand to pay what's coming due, like checking that the money in your wallet and coming this week comfortably covers the bills landing this week; a negative number is a warning sign that cash could get tight.
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