{"id":1616,"date":"2023-10-11T10:48:05","date_gmt":"2023-10-11T14:48:05","guid":{"rendered":"https:\/\/sagestaging.wpengine.com\/en-us\/blog\/?post_type=sage_glossary&#038;p=1616"},"modified":"2023-10-11T10:48:05","modified_gmt":"2023-10-11T14:48:05","slug":"what-is-working-capital","status":"publish","type":"sage_glossary","link":"https:\/\/www.sage.com\/en-us\/blog\/glossary\/what-is-working-capital\/","title":{"rendered":"What is working capital?"},"content":{"rendered":"<header class=\"entry-header has-dark-background-color entry-header--has-illustration entry-header--has-illustration--generic\">\n\t<div class=\"container\">\n\t\t<div class=\"entry-header__row row align-center\">\n\t\t\t<div class=\"col col-lg-7 col-xlg-6 entry-header__content\">\n\t\t\t\t\t\t\t<div class=\"component component-single-header\">\n\t\t\t\t\t\t\t\t\t\t<div class=\"entry-header__misc text--subtitle text--uppercase text--small\">\n\t\t\t\t\t\t\t<a href=\"https:\/\/www.sage.com\/en-us\/blog\/glossary\/\" class=\"entry-header__link\">Glossary definition<\/a>\t\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t<div class=\"entry-title-wrapper\">\n\t\t\t\t\t<h1 class=\"entry-title\">\n\t\t\t\t\t\tWhat is working capital?\t\t\t\t\t<\/h1>\n\t\t\t\t<\/div>\n\n\t\t\t\t\n\t\t\t\t\n\t\t\t\t\n\t\t\t<\/div>\n\n\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t<\/div>\n\t\t<div class=\"single-post-details container\">\n\t\t<div class=\"col\">\n\t\t\t<span class=\"reading-time\"> min read<\/span>\n\t\t<button\n\t\t\ttype=\"button\"\n\t\t\tclass=\"social-share-button button button--icon button--secondary js-social-share-button\"\n\t\t\tdata-share-title=\"What is working capital?\"\n\t\t\tdata-share-url=\"https:\/\/www.sage.com\/en-us\/blog\/glossary\/what-is-working-capital\/\"\n\t\t\tdata-share-text=\"Please read this interesting article\"\n\t\t>\n\t\t\t<span class=\"social-share-button__share-label\">Share<\/span>\n\t\t\t<span class=\"social-share-button__copy-label\" hidden>Copy Link<\/span>\n\t\t\t<span class=\"social-share-button__copy-tooltip\" aria-hidden=\"true\" hidden>Copied<\/span>\n\t\t<\/button>\n\n\t\t\t\t<\/div>\n\t<\/div>\n\t<\/header>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What is working capital and how to calculate it?<\/strong>&nbsp;<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">What is working capital? The working capital is the amount of available money you have to\u202f<a href=\"https:\/\/www.sage.com\/en-us\/blog\/how-to-start-a-business\/\" target=\"_blank\" rel=\"noreferrer noopener\">run your business<\/a> within each financial year.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">If you want to know how to calculate working capital, there\u2019s a formula that can help.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Working capital definition<\/strong>&nbsp;<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Working capital, also known as net working capital, is the difference between your current assets and your current liabilities i.e. net current assets.&nbsp; This shows how much capital your business has overall&#8230; or not as we\u2019ll discuss later in the glossary.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Understanding your business\u2019s working capital is an essential part of your financial toolkit which will then enable you to successfully manage your business finances.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>The working capital management <\/strong><strong>strategy<\/strong>&nbsp;<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">Learning how to calculate your working capital or net working capital (NWC) is important, so you know how much money the business has to spend.&nbsp;&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This is especially useful when considering external funding as investors will want to know this figure before they part with their cash.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">It\u2019s a good idea to work these calculations into your financial management strategy and stay up to date on the numbers.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">You can calculate this figure manually with a formula, or use <a href=\"https:\/\/www.sage.com\/en-us\/sage-business-cloud\/accounting\/\" target=\"_blank\" rel=\"noreferrer noopener\">automated financial management software<\/a> that can do it for you.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Working capital versus net working capital<\/strong>&nbsp;<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">So, what\u2019s the difference between net working capital (NWC) and working capital?&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The answer is that working capital is the term for the initial calculation that looks at assets. The NWC calculation takes into account any short term liabilities, like debts or accounts payable, to give a more accurate idea of what\u2019s left.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The net working capital formula is:&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Net<\/strong> <strong>working capital = current assets \u2013 current liabilities<\/strong>&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Positive versus negative working capital<\/strong>&nbsp;<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">We\u2019ve been talking about positive working capital, assuming your liabilities are less than your assets. So, what is the negative working capital <em>meaning<\/em>?&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Negative working capital means that after performing the working capital calculation, your liabilities (debts, other liabilities, and outgoing payments) are more than what you are bringing in.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">While this doesn\u2019t necessarily mean an immediate problem as outgoing expenditure can fluctuate from month to month, you\u2019ll want to plan your finances carefully and aim to turn this around. Especially if investors are looking closely at your financial data.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>The working capital components<\/strong>&nbsp;<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The components of working capital are assets like loans, cash, raw materials held like gold etc., investments, and accounts receivable.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">While for net working capital calculations, you\u2019ll need details of any liabilities like debts, expenses, sick pay, and accounts payable.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">You can keep a working capital balance sheet to help keep track of these.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Working capital formula<\/strong>&nbsp;<\/h2>\n\n\n\n<p class=\"wp-block-paragraph\">The working capital formula is calculated by deducting your\u202f<a href=\"https:\/\/www.sage.com\/en-us\/blog\/glossary\/what-are-liabilities\/\" target=\"_blank\" rel=\"noreferrer noopener\">liabilities<\/a>\u202ffrom your\u202f<a href=\"https:\/\/www.sage.com\/en-us\/blog\/a-comprehensive-guide-to-assets-and-asset-management\/\" target=\"_blank\" rel=\"noreferrer noopener\">liquid assets<\/a>\u202f(the things you own that are cash or can be converted to cash quickly with little loss of value).&nbsp;&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The formula is, thankfully, simple:&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Working capital = liquid assets \u2013 current liabilities<\/strong>&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">It is important to remember that inventory, property, or money owed from your customers are not included in your working capital calculation.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The end result is a balance sheet figure that tells you how much you currently have to spend on everything from wages to inventory.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Having a good\u202f<a href=\"https:\/\/www.sage.com\/en-us\/blog\/what-is-a-working-capital-cycle\/\" target=\"_blank\" rel=\"noreferrer noopener\">working capital<\/a>\u202fmeans you can cover your overheads and run your business. It\u2019s a good measure of how well your business is doing.&nbsp;<\/p>\n\n<section class=\"more-topics alignfull has-grey-light-background-color wp-block-sage-post-topics\">\n\t<div class=\"container\">\n\t\t<div class=\"row\">\n\t\t\t<div class=\"col col-12 col-lg-4\">\n\t\t\t\t<h3 class=\"more-topics__title h2\">Browse more topics from this term<\/h3>\n\t\t\t<\/div>\n\t\t\t<div class=\"col col-12 col-lg-8\">\n\t\t\t\t<ul class=\"post-tags__list\">\n\t\t\t\t\t\t\t\t\t\t\t<li class=\"post-tags__item\">\n\t\t\t\t\t\t\t<a href=\"https:\/\/www.sage.com\/en-us\/blog\/hub\/accounting-101\/\" class=\"post-tags__link button button--secondary\">\n\t\t\t\t\t\t\t\tAccounting 101\t\t\t\t\t\t\t<\/a>\n\t\t\t\t\t\t<\/li>\n\t\t\t\t\t\t\t\t\t\t\t<li class=\"post-tags__item\">\n\t\t\t\t\t\t\t<a href=\"https:\/\/www.sage.com\/en-us\/blog\/hub\/cash-flow\/\" class=\"post-tags__link button button--secondary\">\n\t\t\t\t\t\t\t\tCash Flow\t\t\t\t\t\t\t<\/a>\n\t\t\t\t\t\t<\/li>\n\t\t\t\t\t\t\t\t\t<\/ul>\n\t\t\t<\/div>\n\t\t<\/div>\n\t<\/div>\n<\/section>\n\n<div class=\"alignfull wp-block-sage-related-posts\">\n\t<section class=\"related-posts card-grid has-dark-background-color\">\n\t<div class=\"container\">\n\t\t\t\t\t<div class=\"row\">\n\t\t\t\t<div class=\"col\">\n\t\t\t\t\t<h2 class=\"related-posts__heading related-posts__heading--featured h1\">Explore more wisdom<\/h2>\n\t\t\t\t<\/div>\n\t\t\t<\/div>\n\n\t\t\t<div class=\"row related-posts__featured\">\n\t\t\t\t<div class=\"col card-grid__item\">\n\t\t\t\t\t<article\n\t\tclass=\"card-post related-post related-post-0 post-30823 post type-post status-publish format-standard has-post-thumbnail hentry category-money-matters category-strategy-legal-operations tag-accounting-101 tag-boss-your-business tag-business-intelligence tag-cash-flow tag-small-business tag-starting-a-business tag-staying-competitive business_type-small-business business_type-growing-business card-post--is-clickable\"\n>\n\t<div class=\"card-post__media-wrapper\">\n\t\t<figure class=\"card-post__media\">\n\t\t\t\t\t\t\t<img decoding=\"async\" width=\"1215\" height=\"810\" src=\"https:\/\/www.sage.com\/en-us\/blog\/wp-content\/uploads\/sites\/2\/2023\/09\/GettyImages-1190223207-1215x810.jpg\" class=\"card-post__image\" alt=\"\" loading=\"lazy\" srcset=\"https:\/\/www.sage.com\/en-us\/blog\/wp-content\/uploads\/sites\/2\/2023\/09\/GettyImages-1190223207-684x384.jpg 684w, https:\/\/www.sage.com\/en-us\/blog\/wp-content\/uploads\/sites\/2\/2023\/09\/GettyImages-1190223207-768x512.jpg 768w, https:\/\/www.sage.com\/en-us\/blog\/wp-content\/uploads\/sites\/2\/2023\/09\/GettyImages-1190223207-1215x810.jpg 1215w\" sizes=\"auto, (min-width: 48em) 250px, (min-width: 30em) 100vw, 100vw\" \/>\t\t\t\n\t\t\t\n\t\t\t\t\t<\/figure>\n\t<\/div>\n\n\t<div class=\"card-post__content\">\n\t\t\t\t\t<div class=\"card-post__label\">Recommended<\/div>\n\t\t\n\t\t\t\t\t<div class=\"card-post__meta\">\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<span class=\"card-post__meta-text\"><span class=\"posted-on \"><time class=\"entry-date published\" datetime=\"2026-06-24T09:08:55-04:00\">June 24, 2026<\/time><\/span><\/span>\n\t\t\t\t\t\t\t\t\t\t\t<span class=\"card-post__meta-text\"><span class=\"reading-time\">13 min read<\/span><\/span>\n\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\n\t\t<p class=\"card-post__title h3\">\n\t\t\t\t\t\t\t<a\n\t\t\t\t\tclass=\"card-post__title-link\"\n\t\t\t\t\thref=\"https:\/\/www.sage.com\/en-us\/blog\/how-to-track-business-expenses\/\"\n\t\t\t\t>\n\t\t\t\n\t\t\tHow to keep track of business expenses\n\t\t\t\t\t\t\t<\/a>\n\t\t\t\t\t<\/p>\n\n\t\t\n\t\t\t\t\t<p class=\"card-post__description\">\n\t\t\t\tIf you&#8217;re responsible for managing business finances, keeping track of expenses affects how clearly you can see your cash flow and make informed decisions. Learn the key steps, best tools, and how to build a process that keeps your finances accurate and error free. \t\t\t<\/p>\n\t\t\n\t\t\t<\/div>\n\n\t<\/article>\n\t\t\t\t<\/div>\n\t\t\t<\/div>\n\t\t\n\t\t\t\t\t<div class=\"row related-posts__non-featured\">\n\t\t\t\t<div class=\"col col-12\">\n\t\t\t\t\t<h2 class=\"related-posts__heading related-posts__heading--more h4\">More on this Topic<\/h2>\n\t\t\t\t<\/div>\n\n\t\t\t\t\n\t\t\t\t\t<div class=\"col col-6 col-lg-3 card-grid__item\">\n\t\t\t\t\t\t<article\n\t\tclass=\"card-post related-post related-post-1 post-29306 post type-post status-publish format-standard has-post-thumbnail hentry category-money-matters category-strategy-legal-operations tag-accounting-101 tag-boss-your-business tag-business-continuity tag-small-business business_type-small-business\"\n>\n\t\t\t<a\n\t\t\tclass=\"card-post__link\"\n\t\t\thref=\"https:\/\/www.sage.com\/en-us\/blog\/what-is-a-purchase-order\/\"\n\t\t\t\t\t>\n\t\t\t<figure 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\/>\t\t\t\n\t\t\t\n\t\t\t\t\t<\/figure>\n\n\t\t\n\t\t\t\t\t<div class=\"card-post__meta\">\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<span class=\"card-post__meta-text\"><span class=\"posted-on \"><time class=\"entry-date published\" datetime=\"2026-06-02T05:54:37-04:00\">June 2, 2026<\/time><\/span><\/span>\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<span class=\"card-post__meta-text\"><span class=\"reading-time\">15 min read<\/span><\/span>\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\n\t\t<p class=\"card-post__title h5\">\n\t\t\tPeer-to-peer fundraising guide: Best practices for success\t\t<\/p>\n\n\t\t\t<\/a>\n\t\n\t\n\t\t\n\t\n\t<\/article>\n\t\t\t\t\t<\/div>\n\t\t\t\t\n\t\t\t\t\t<div class=\"col col-6 col-lg-3 card-grid__item\">\n\t\t\t\t\t\t<article\n\t\tclass=\"card-post related-post related-post-4 post-29487 post type-post status-publish format-standard has-post-thumbnail hentry category-money-matters category-strategy-legal-operations tag-accounting-101 tag-boss-your-business tag-business-continuity tag-business-intelligence tag-cash-flow tag-sage-accounting tag-small-business tag-starting-a-business business_type-small-business business_type-growing-business\"\n>\n\t\t\t<a\n\t\t\tclass=\"card-post__link\"\n\t\t\thref=\"https:\/\/www.sage.com\/en-us\/blog\/accounts-payable-vs-notes-payable\/\"\n\t\t\t\t\t>\n\t\t\t<figure class=\"card-post__media\">\n\t\t\t\t\t\t\t<img decoding=\"async\" width=\"684\" height=\"384\" src=\"https:\/\/www.sage.com\/en-us\/blog\/wp-content\/uploads\/sites\/2\/2024\/10\/BrandShoot-LND_June2024_Financial-Services_0474-684x384.jpg\" class=\"card-post__image\" alt=\"\" loading=\"lazy\" srcset=\"https:\/\/www.sage.com\/en-us\/blog\/wp-content\/uploads\/sites\/2\/2024\/10\/BrandShoot-LND_June2024_Financial-Services_0474-684x384.jpg 684w, https:\/\/www.sage.com\/en-us\/blog\/wp-content\/uploads\/sites\/2\/2024\/10\/BrandShoot-LND_June2024_Financial-Services_0474-768x512.jpg 768w, https:\/\/www.sage.com\/en-us\/blog\/wp-content\/uploads\/sites\/2\/2024\/10\/BrandShoot-LND_June2024_Financial-Services_0474-1214x810.jpg 1214w\" sizes=\"auto, (min-width: 48em) 250px, (min-width: 30em) 100vw, 100vw\" \/>\t\t\t\n\t\t\t\n\t\t\t\t\t<\/figure>\n\n\t\t\n\t\t\t\t\t<div class=\"card-post__meta\">\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<span class=\"card-post__meta-text\"><span class=\"posted-on \"><time class=\"entry-date published\" datetime=\"2026-05-22T12:03:36-04:00\">May 22, 2026<\/time><\/span><\/span>\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<span class=\"card-post__meta-text\"><span class=\"reading-time\">8 min read<\/span><\/span>\n\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t\t<\/div>\n\t\t\n\t\t<p class=\"card-post__title h5\">\n\t\t\tNotes payable vs accounts payable: Differences and examples\t\t<\/p>\n\n\t\t\t<\/a>\n\t\n\t\n\t\t\n\t\n\t<\/article>\n\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t<\/div>\n\t\t\t<\/div>\n<\/section>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>What is working capital and how to calculate it?&nbsp; What is working capital? The working capital is the amount of available money you have to\u202frun your business within each financial year.&nbsp; If you want to know how to calculate working capital, there\u2019s a formula that can help.&nbsp; Working capital definition&nbsp; Working capital, also known as [&hellip;]<\/p>\n","protected":false},"author":102,"featured_media":0,"template":"","meta":{"_sage_video":false,"footnotes":""},"tags":[110,299],"class_list":["post-1616","sage_glossary","type-sage_glossary","status-publish","hentry","tag-accounting-101","tag-cash-flow"],"distributor_meta":false,"distributor_terms":false,"distributor_media":false,"distributor_original_site_name":"Sage Advice US","distributor_original_site_url":"https:\/\/www.sage.com\/en-us\/blog","push-errors":false,"_links":{"self":[{"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/sage_glossary\/1616","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/sage_glossary"}],"about":[{"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/types\/sage_glossary"}],"author":[{"embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/users\/102"}],"version-history":[{"count":0,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/sage_glossary\/1616\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/media?parent=1616"}],"wp:term":[{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sage.com\/en-us\/blog\/api\/wp\/v2\/tags?post=1616"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}