Glossary definition

What is working capital?

Working capital

Integral to daily functioning, working capital is the financial measure of an organization’s ability to pay its short-term debts and expenses. A company’s working capital represents the funds available on hand to cover all day to day operations.

The universal net working capital formula:

Net Working Capital = Current Assets – Current Liabilities

A business’s current assets are all possessed cash or cash equivalents—this includes undeposited checks, checking and savings accounts, money market accounts, and short-term, quick-turnaround investments. Current liabilities are financial obligations due within the company’s operating cycle. This simple working capital definition should serve in your organization’s regularly prepared balance sheets.

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