What Is Working Capital?

Working capital is the difference between your current assets (cash, receivables, inventory) and current liabilities (payables, short-term debt) due within one year. It represents the cash available to fund everyday operations—payroll, supplies, short-term obligations.

Positive working capital means you have enough liquid resources to meet short-term needs; negative working capital signals that you may struggle to pay bills as they come due. Working capital management is critical for small and growing businesses because a profitable company can still fail if it runs out of cash. For example, a business that offers customers 60-day payment terms while paying suppliers in 30 days experiences a cash timing gap—inventory and labor are funded before customer payments arrive.

Formula

Working Capital = Current Assets − Current Liabilities

Where Current Assets = Cash + Accounts Receivable + Inventory + Other Short-Term Assets

And Current Liabilities = Accounts Payable + Short-Term Debt + Accrued Expenses

Example

A software reseller has $150,000 in cash, $100,000 in receivables, and $80,000 in inventory (total current assets: $330,000). Against this, they owe suppliers $90,000 and have $30,000 in short-term debt (total current liabilities: $120,000). Working capital is $210,000—meaning they have $210,000 cushion to pay for operations and growth.

Tracking working capital helps you spot cash shortages early. Finmap projects how your working capital evolves as you invoice customers and pay suppliers, so you can plan ahead and avoid liquidity crunches.