Investing term

What is Working capital?

Current assets minus current liabilities — the operating buffer the business runs on day-to-day.

Working capital is current assets minus current liabilities — the short-term operating buffer a business runs on day to day. Positive working capital means a company can comfortably cover its near-term obligations; negative or shrinking working capital can signal a cash crunch ahead. It's a quick health check on whether the business can keep the lights on without scrambling for cash.

For example

A company with $5M of current assets and $3M of current liabilities has $2M of working capital — its cushion for paying near-term bills.

Working capital is taught hands-on in Stage 14 — Reading Financial Statements.

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Related terms

Accounts receivable (A/R)Money customers owe the company for goods or services already delivered but not yet paid.AccrualsAccounting entries that record revenue or expense before cash actually moves.Annual reportThe yearly disclosure that includes audited financials, MD&A, and footnotes — the primary source for serious investors.Balance sheetThe 'photo' statement — what the company owns, what it owes, and what's left for owners, on a single date.
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