Working Capital is the difference between a company’s current assets and current liabilities, showing its ability to meet short-term financial obligations and run day-to-day operations smoothly.
Working capital is a key measure of a business’s short-term financial health and operational efficiency. It tells whether a company has enough liquid resources to pay salaries, suppliers, rent, utility bills, and other daily expenses.
The basic formula is:
Working Capital = Current Assets − Current Liabilities
A positive working capital means the business can comfortably meet its short-term obligations. A negative working capital may indicate cash flow problems, though in some fast-moving businesses (like retail), it can still be manageable.
Efficient working capital management helps improve cash flow, reduce borrowing costs, and ensure smooth business operations. Businesses regularly monitor working capital to avoid liquidity issues and maintain financial stability.
"If a company has current assets worth ₹20 lakh and current liabilities of ₹12 lakh, its working capital is ₹8 lakh. This means the company has sufficient funds to manage its day-to-day expenses."