Working Capital
Working Capital
Current assets minus current liabilities. The dollar amount of liquid assets above what is needed for near-term obligations.
When to use: A complement to ratio-based liquidity measures: working capital tells you the absolute dollar buffer. Negative working capital is sometimes a feature, not a bug — fast-turning retailers (groceries, restaurants) collect from customers before paying suppliers.
Formula
Variables
| Symbol | Name | Description | Unit |
|---|---|---|---|
| WCap | Working Capital | Current assets − current liabilities | $ |
| CurrentAssets | Current Assets | Cash + receivables + inventory + other current assets | $ |
| CurrentLiabilities | Current Liabilities | Accounts payable, short-term debt, and other liabilities due within one year | $ |
Real-Life Examples
Example 1: Mid-Cap Working Capital
Current assets $400M, current liabilities $200M.
Given
Step-by-Step
For the full dollar inputs, Working Capital is $200,000,000.00.
Frequently Asked Questions
For businesses where customers pay quickly and suppliers extend long credit (groceries, fast-food, e-commerce platforms), negative WC means the company is effectively financed by its supply chain. Amazon famously runs negative WC — a feature, not a flaw.
Growing sales typically require more receivables and inventory, increasing WC. If WC grows faster than sales, operations are getting less efficient. If slower, the firm is improving working-capital management.