Definition of Working Capital



Working capital is a measure of assessing the operating liquidity of a business. It is also called the net working capital. Basically, it is the amount of net liquid funds that is required to run the business operations smoothly. Higher net working capital means the company has enough resources to pay off its current liabilities. The net working capital is also used to assess the liquidity of a company.

 


The higher the current assets as compared to current liabilities, the better the company’s liquidity will be.

Net working capital = Inventories + cash + accounts receivables – accounts payables


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