What is Working Capital?

Working Capital is the cash available to the business for carrying out its day to day activities. It might include paying for labour wages, purchasing stock, paying short term creditors etc.

A healthy working capital position is a measure of both a company's efficiency and its short-term financial health.

The working capital ratio is calculated as:

Working Capital


Positive working capital means that the company is able to pay off its short-term liabilities.

working capital

Negative working capital means that a company currently is unable to meet its short-term liabilities with its current assets (cash, accounts receivable and inventory).

Importance of Working Capital

Working Capital Management

Maintaining a stable working capital position in the business depends on the following factors