What Is Working Capital? Explained Simply
Working capital is the money a company needs to cover its everyday operations — paying suppliers and staff, holding inventory, waiting for customers to pay. It's the financial fuel that keeps the lights on day to day.
The simple definition
Working capital = current assets − current liabilities. In plain terms, it's what the company owns that can quickly become cash (stock, money customers owe it, cash) minus what it must pay soon (suppliers, short-term dues). Positive working capital means it can comfortably cover the near term.
Why it matters
A business can be profitable on paper but still run into trouble if it's short of working capital — it can't pay this month's bills while waiting for customers to pay next month. Managing working capital well (collecting fast, paying sensibly, not over-stocking) is a sign of operational discipline.
When negative is actually good
Surprisingly, some excellent businesses run on negative working capital — they collect cash from customers before paying suppliers (think of a retailer or a subscription business). They're effectively funded by their suppliers, which is a sign of real bargaining power. So context matters: read it alongside the current ratio and the balance sheet.