Working Capital

Working Capital is a financial metric that represents the difference between a company’s current assets and current liabilities. It measures a business's short-term liquidity and operational efficiency, indicating whether a company can cover its day-to-day operational expenses and short-term debt obligations.

Working Capital Formula:

Working Capital = Current Assets - Current Liabilities

Positive working capital means a company has more short-term assets than liabilities, suggesting strong liquidity and financial health. Negative working capital could signal liquidity issues and difficulties in meeting short-term obligations. Working capital management ensures a business maintains sufficient cash flow for operational needs while optimizing resource allocation.