The difference between a company's current assets and current liabilities, representing the short-term liquidity available for day-to-day operations.
Working capital measures whether a company can meet its short-term obligations. Positive working capital means the business has enough short-term assets to cover short-term debts. Negative working capital is a warning sign (except in businesses like supermarkets that collect cash before paying suppliers). The working capital cycle measures how long it takes to convert working capital into cash.
A business has current assets of ₹15,00,000 (cash, receivables, inventory) and current liabilities of ₹10,00,000 (payables, short-term loans). Working Capital = ₹5,00,000 (positive).
Ensures accurate financial reporting and record-keeping
Helps maintain regulatory and tax compliance
Enables better-informed business decisions
Improves operational efficiency and cash flow management
A current ratio (Current Assets ÷ Current Liabilities) between 1.5 and 2.0 is generally healthy. Below 1.0 means the company may struggle to pay short-term debts.
Yes. Excess working capital means idle cash or overinvestment in inventory/receivables. It suggests the company isn't efficiently using its resources to grow.
A liquidity ratio that measures a company's ability to pay its short-term obligations using its short-term assets.
The net amount of cash and cash equivalents moving into and out of a business during a specific period.
Money owed to a business by its customers for goods or services delivered but not yet paid for.
Money a business owes to its suppliers or vendors for goods and services received but not yet paid for.
Let Laabam.One handle the complexity. From invoicing to GST filing, our ERP software makes accounting effortless.