Business finance glossary
Working capital
Current assets minus current liabilities — the cash available to fund day-to-day business operations.
Working capital is the difference between a business's current assets (cash, accounts receivable, inventory) and its current liabilities (accounts payable, short-term debt due within 12 months, accrued expenses). Positive working capital means the business can cover near-term obligations from existing liquid assets. Negative working capital is a warning sign that the business may struggle to pay its bills as they come due. Working capital fluctuates with the cash conversion cycle — the time between paying for inventory and collecting from customers. A growing business often needs increasing working capital; a working capital loan bridges the gap while receivables catch up to payables.