What Is Working Capital, and Why Does It Matter?

Working capital is like the engine oil of a business—it keeps the day-to-day operations running smoothly.

It’s calculated as: Working Capital = Current Assets – Current Liabilities

In simpler terms, it’s the money a company has available to cover short-term expenses.

Why does it matter? Positive working capital means the business can handle its obligations, invest in growth, and navigate unexpected challenges.

On the flip side, negative working capital could signal cash flow problems, which might lead to trouble paying bills or suppliers.

It’s also a key metric for understanding operational efficiency. For example, managing inventory, speeding up receivables, or negotiating better payment terms can all improve working capital—and free up cash for the business.

Talk soon,

Sam