Definition – What is Working Capital?
Working capital is the difference between current assets and current liabilities. It is a regular number and not a ratio or percentage. It is simply current assets minus current liabilities.
A positive number or working capital would mean that the firm can easily meet a short-term financial obligation. A negative number would mean it might not be able to.
Formula – How to calculate Working Capital
Working Capital = Current Assets – Current Liabilities
A company has current assets of $10,000 and current liabilities of $5,000.
Working Capital = $10,000 – $5,000
Therefore, this company has working capital for $5,000.