Working capital measures whether a business has enough short term resources to cover short term obligations. Current assets include cash, receivables, and inventory. Current liabilities include bills and short term debt due soon. Negative working capital can signal stress, though some efficient models run lean by design.
Key takeaways
- It is a balance sheet view of short term financial flexibility, not a profit figure.
- Rising sales can consume working capital if customers pay slowly or stock builds up.
- Lenders and suppliers watch working capital when they judge credit risk.
- Compare the figure over time and against peers rather than reading one number in isolation.