Working capital
Current assets minus current liabilities
Working capital refers to the amount of money a company has available for its day-to-day operations. It is calculated by subtracting a company’s current liabilities from its current assets.
Current assets include cash, inventory, accounts receivable, and other assets that can be easily converted to cash within a year. Current liabilities include accounts payable, short-term loans, and other debts that are due within a year.
Having enough working capital is crucial for a company to meet its short-term obligations, pay its bills, and maintain its operations. A lack of working capital can lead to cash flow problems and even bankruptcy.
To manage working capital, companies can take steps to improve their cash flow, such as negotiating better payment terms with suppliers, collecting accounts receivable more quickly, and reducing inventory levels. It is also important for companies to have a clear understanding of their working capital needs and to develop a plan to meet those needs.
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