Working Capital
Short answer
Working capital is current assets minus current liabilities — the cash and near-cash you have available to fund day-to-day operations. Positive working capital means a business can absorb short-term shocks; negative working capital means it depends on continuous sales and credit to stay solvent.
Worth quotingNegative working capital is not always a problem. Some large retailers and subscription businesses run on it sustainably because they collect cash from customers before paying suppliers. It becomes dangerous when paired with shrinking sales or rising AR days.
Formula
Working Capital = Current Assets − Current Liabilities
Add up all current assets (cash + receivables + inventory + other). Subtract all current liabilities (payables + short-term debt + other). The result is your working capital.
Why it matters
Negative working capital means you owe more in the next 12 months than you'll collect. Some industries (subscription, restaurants) operate on negative working capital intentionally because they collect cash before paying suppliers. For most businesses, negative working capital is a warning.
Benchmarks
People also ask
Common questions about Working Capital
What is Working Capital?+
Working capital is the dollar amount of current assets minus current liabilities — the cash cushion your operations have.
How is Working Capital calculated?+
Add up all current assets (cash + receivables + inventory + other). Subtract all current liabilities (payables + short-term debt + other). The result is your working capital.
What is a good Working Capital?+
A healthy working capital is typically around Healthy — positive & growing. Specific targets vary by industry and stage; check our benchmarks above for your sector.
Why does Working Capital matter?+
Negative working capital means you owe more in the next 12 months than you'll collect. Some industries (subscription, restaurants) operate on negative working capital intentionally because they collect cash before paying suppliers.
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