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What is Working Capital


Working capital is money available to a company for day-to-day operations. Working capital measures a company's liquidity, efficiency, and overall health. Because it includes cash, inventory, accounts receivable, accounts payable, the portion of debt due within one year, and other short-term accounts, a company's working capital reflects the results of a host of company activities, including inventory management, debt management, revenue collection, and payments to suppliers.

Working Capital Formula

You can calculate the working capital of an organization by using the following formula:
Working Capital = Current Assets - Current Liabilities
Example for Working Capital

Working Capital = Current Assets - Current Liabilities
Working Capital = $160,000 - $65,000 = $95,000
In this example, we see that the company's working capital is $95,000 -- a positive working capital.
Positive working capital generally indicates that a company is able to pay off its short-term liabilities almost immediately. Negative working capital generally indicates a company is unable to do so.

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