Difference between current assets and current liabilities, showing the short-term resource cushion available for operations.
Working capital is the difference between current assets and current liabilities. It shows how much short-term resource capacity a business has available to support operations after covering near-term obligations.
Working capital helps readers judge whether the business has enough short-term balance-sheet support to fund inventory, receivables, payroll, and other operating needs. Too little can create liquidity stress. Too much can suggest idle cash, slow collections, or excess inventory.
The usual formula is:
\[ \text{Working Capital} = \text{Current Assets} - \text{Current Liabilities} \]
Accountants and analysts use working capital to connect the balance sheet with day-to-day operating pressure. Changes in receivables, inventory, payables, and accrued liabilities can all move working capital materially from one period to the next.
The term is often used interchangeably with net working capital or net current assets in everyday accounting discussion.
If a company has current assets of 320,000 and current liabilities of 210,000, working capital is 110,000:
| Input | Amount |
|---|---|
| Current assets | 320,000 |
| Current liabilities | 210,000 |
| Working capital | 110,000 |
That means the company has a 110,000 current-asset cushion before considering non-current assets and liabilities.
Working capital is not a ratio. It is a dollar amount. The current ratio and quick ratio are related measures, but they evaluate the same short-term position in ratio form rather than as an absolute balance.