working capital

Definition

Working capital, defined as current assets minus current liabilities, serves as a key indicator of a company’s short‑term financial health and operational efficiency. Positive working capital suggests that the company can meet its near‑term obligations and fund day‑to‑day operations, whereas negative working capital may indicate liquidity challenges or aggressive financing of operating activities through supplier credit. The optimal level of working capital varies by industry; for example, grocery retailers often operate with slim or negative working capital due to rapid inventory turnover, while heavy‑manufacturing firms require ample buffers. Analyzing changes in working capital components—such as receivables, inventory, and payables—helps management forecast cash needs, optimize financing, and improve operational performance.

See also