Working Capital is the difference between a company’s current assets and current liabilities, representing its ability to meet short term obligations.
How It Works:
- Current assets such as cash and receivables are calculated.
- Current liabilities such as payables are determined.
- The difference represents working capital.
- It indicates liquidity position.
Benefits:
- Ensures smooth day to day business operations
- Enhances liquidity and financial stability
- Supports timely payment of obligations
- Improves operational efficiency and business continuity
Example:
A company with sufficient working capital can pay suppliers and manage operations without delays.