Working capital is the amount of a company’s current assets minus the amount of its current liabilities. The adequacy of a company’s working capital depends on the industry in which it operates, its relationship with its customers and suppliers, its inventory levels and more. Working Capital and Net Working Capital are usually interchangeable – Current Liabilities are netted off in both cases
Working capital is the excess of current assets over current liabilities. In other words, it is the money invested in those assets of a business which are intended to be converted into cash in the ordinary course of business.
In calculating the working capital, we add up all the current assets such as inventory, receivables, short term current investments, cash, and bank balances and from the sum we reduce the current liabilities (which are payable within the next 12 months). Examples of current liabilities are the dues to suppliers, advances from customers, bills, and expenses payable.
Working capital, also known as net working capital (NWC), is the difference between a company’s current assets—such as cash, accounts receivable/customers’ unpaid bills, and inventories of raw materials and finished goods—and its current liabilities, such as accounts payable and debts. It’s a commonly used measurement to gauge the short-term health of an organization.
Formula
Working Capital = Current Assets – Current Liabilities
