This glossary uses Visual Finance™ to bring financial terms to life. Each example shows data from the Round Number Company, a fictional business with simplified figures to make learning easier. For more details, visit 'How to Read Visual Finance'.
Working Capital is the cash needed to run the business on a day-to-day basis: i.e. the cash needed to maintain inventories and pay expenses.
Calculation: Current Assets - Current Liabilities
Example: The Round Number CompanyTotal Current Assets = 66; Total Current Liabilities = 18 Working Capital = 66 - 18 = 48 |
Working Capital does not include machinery, land or buildings (those are Fixed Assets needed to run the business). Rather, it’s the rhythmic needs of the business: inventory builds up - then it is sold - then you wait for money to come in from sales - pay bills - buy more inventory - and start all over again.
See also Working Capital Ratio
Also known as Net Working Capital.
See also Non-Cash Working Capital.
See Discussion of Working Capital on the Income|Outcome Blog.
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Calculator for Working Capital or Net Working Capital
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The above is our generic explanations of common corporate financial terminology. Actual meanings can vary widely from company to company; in order to have the correct internal definition you need to ask your Finance Department, "What do you mean by that?"
term list.