Working Capital

Formal

A term describing a range of shorter term company Assets and Liabilities that allows the business to trade. Included in here are cash balances, debtors, stock, which are all ‘assets’, and creditors, short term loans and other obligations which are ‘liabilities’. If assets exceed liabilities then the company has positive working capital and has the ability to trade. More liabilities than assets means that the company could run out of cash, and trade could stop. Therefore - a key measure for company health and survival.

Real-world Example

A business has $600k in current assets (cash, stock, debtors) and $400k in current liabilities (bills, short-term debt) - working capital of $200k, the funds available to cover its day-to-day operations.