Working Capital
Current assets minus current liabilities — a measure of short-term liquidity and operational efficiency.
Working capital represents the funds available to run day-to-day operations. The formula is simple: Current Assets (cash, receivables, inventory) minus Current Liabilities (payables, short-term debt, accrued expenses).
Positive working capital means a company can cover its short-term obligations. Negative working capital means it relies on future revenue or external funding to pay current bills — a situation that becomes dangerous if revenue slows.
Working capital management is about optimising the cash conversion cycle: collecting receivables faster, managing inventory efficiently, and taking advantage of payment terms with suppliers. Improvements in any of these areas free up cash without requiring external financing.
For growing companies, working capital often becomes a constraint because revenue growth requires upfront investment in inventory and labour before customers pay. This is why profitable companies can still run out of cash — they're growing faster than their working capital cycle supports.
Related Terms
Current assets divided by current liabilities — a quick test of short-term debt coverage.
Money a company owes to suppliers and vendors — a current liability on the balance sheet.
Money owed to a company by its customers — a current asset that directly affects cash flow.
A report showing how cash moves in and out of a business across operating, investing, and financing activities.
Further Reading
Revenue looks good but cash is always tight? Learn why Malaysian SMEs face cash flow problems and 5 proven strategies to fix them for good.
Learn how to build a credible, board-ready cash flow forecast — from model structure to the assumptions that determine whether your numbers hold up.
A practical guide to the financial KPIs that give CFOs real-time visibility into business health across global operations.