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.
