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Working Capital: Definition and Meaning
Definition
Working capital is current assets minus current liabilities. It is a common measure of short-term operating liquidity.
Why It Matters
Working capital helps indicate whether a business has resources available to support near-term operations and obligations. It is affected by cash, receivables, inventory, payables, payroll, taxes, debt payments, and other current balances.
Positive working capital does not guarantee sufficient cash flow, and negative working capital is not always a problem in every business model. Management should consider the timing, quality, and predictability of underlying balances.
Example
A company has $300,000 of current assets and $180,000 of current liabilities. Its working capital is $120,000.
Related Terms
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