working capital

Working Capital

A company's current assets minus its current liabilities - considered a good measure of both a company's efficiency and its financial health. A positive working capital means that the company is able to payoff their short-term liabilities. A negative working capital means that a company currently is unable to meet their short-term liabilities with their current assets (cash, accounts receivable, inventory).

Also known as "net working capital".

Investopedia Commentary

If a company's current assets do not exceed its current liabilities, then it may run into trouble paying back creditors that want their money quickly. The working capital ratio, which measures this ability to pay back creditors, is calculated as current assets divided by current liabilities.

Working capital also gives investors an idea of the company's underlying operational efficiency. Money that is tied up in inventory or money that customers still owe to the company can't be used to pay off any of its obligations. So if a company is not operating in the most efficient manner (slow collection) it will show up in the working capital. This can be seen by comparing the working capital from one period of time to another; slow collection may illustrate an underlying problem in the company's operations.

Related Links

Working Capital Works
Reading The Balance Sheet
In Position

See also: Current Assets, Current Liabilities, Working Capital Loan, Working Capital Turnover

Also spelled: NWC

working capital

The amount of current assets that is in excess of current liabilities. Working capital is frequently used to measure a firm's ability to meet current obligations. A high level of working capital indicates significant liquidity. Also called net current assets, net working capital. See also current ratio, quick ratio.