Working capital

Working capital represents the amount of liquidity available to a company's operations.

Expanded Definition

Working capital measures how liquid a company's assets are -- that is, how easily they are convertible to cash to supply the day-to-day operational needs of the organization. As such, it provides a measure both of how efficient a company's operations are and how healthy its short-term finances are.

Significant and sustainable working capital provides a company with the flexibility to expand and improve its operations as well as respond to changing economic circumstances.

Working capital is calculated by subtracting current liabilities from current assets. If liabilities exceed assets, the company is said to have a working capital deficit.

Working capital is also known as "net working capital," "net current assets," or "current capital."

Related Terms

• Current assets
• Current liabilities

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