Working Capital

The short-term resources and obligations used in a firm's operating cycle. The broad accounting measure is current assets minus current liabilities; corporate-finance models often focus more narrowly on operating items.

Why It Matters

Growth can consume cash when receivables and inventory rise faster than trade credit and other operating liabilities. Working-capital policy therefore affects liquidity, short-term borrowing, supplier relations, covenant headroom, and the amount of cash available for investment or distribution.

Reading the Measure

A working relation and an interpretive limit for corporate-finance use.

Working relation

Broad working capital = current assets − current liabilities

Interpretive caution

State the convention before comparing firms. Valuation models commonly exclude cash and interest-bearing debt from operating net working capital, while the balance-sheet ratio uses all current assets and liabilities.

Accounting reference: SEC: Beginners' Guide to Financial Statements