Glossary
Working capital
Definition
Working capital is current assets minus current liabilities: the cushion a business has to meet short-term obligations. Growing businesses often consume working capital as receivables and inventory rise.
How working capital works
The current ratio expresses the same relationship as a ratio.
Managing collection terms, inventory and payables frees working capital.
Why it matters to a firm
It connects growth, cash and financing, a strong advisory topic.
Questions about working capital
Can working capital be negative?
Yes, which signals liquidity risk in most businesses.
Can it be too high?
Yes, if cash or inventory sits idle.
How do I improve it?
Collect faster and manage inventory.
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Related terms: Current ratio
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