Definition
Working capital represents the operating liquidity available to run day-to-day business operations. Positive working capital means the company can fund current operations and invest in future activities. Negative working capital can indicate liquidity problems, though some businesses (like Amazon) deliberately operate with negative working capital by collecting from customers before paying suppliers.
functions Formula
Working Capital = Current Assets − Current Liabilities
lightbulb Example
Current assets are $25M and current liabilities are $18M. Working capital = $7M, providing a comfortable liquidity buffer for operations.
verified_user Key Points
- Positive working capital indicates short-term solvency
- Negative working capital may be intentional in some business models
- Working capital turnover measures efficiency
- Changes in working capital affect cash flow