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Working capital is a financial metric that represents the difference between a company’s current assets and current liabilities. It is a crucial measure of a company’s short-term liquidity and operational efficiency. Positive working capital indicates that a company can easily meet its short-term obligations, while negative working capital may suggest financial trouble or difficulties in meeting those obligations.

Current assets typically include cash, accounts receivable, and inventory, while current liabilities include accounts payable, short-term debt, and other obligations that are due within a year. By managing working capital effectively, businesses can ensure they have enough cash flow to sustain operations, invest in growth opportunities, and meet unforeseen expenses.

Improving working capital can involve optimizing inventory levels, accelerating accounts receivable collection, and extending accounts payable where possible. Monitoring working capital is essential for financial health and sustainability in both small businesses and large corporations.