Working capital represents the amount of liquidity available to a company's operations.
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.
Recent Mentions on Fool.com
- The Dow's 5 Most Hated Stocks
- 1 Poker Tip That Can Make You a Better Investor
- Yes, You Can Retire With the Help of Oil and Natural Gas
- Before You Quit Your Job, Know the Rules for Rolling Over Retirement Savings
- The Complete Guide to 2014 Tax Filing for Same-Sex Married Couples
- This Legendary Investor is Preparing For a Big Downturn - Should You Believe Him?