What is working capital? Formula and working capital management tips
Successful managers make informed business decisions based on metrics, one of which is working capital. No business can operate without generating sufficient cash inflows, and monitoring working capital can help you get enough cash in the door each month. You can use the components of working capital and some key financial ratios to improve your outcomes and your business’s short-term financial health. Let’s start with a definition. What is working capital? The definition of working capital is the capital a business uses for its day-to-day operations. Working capital, also called net working capital (NWC), is calculated by subtracting a business’s current liabilities from its current assets. Working capital formula Working capital = Current assets – Current liabilities Assets and liabilities are included in the balance sheet, and you’ll use the components of the balance sheet to calculate working capital. The balance sheet is generated using a formula. Understanding the balance sheet f...
