Working Capital
Money tied up in running the business — current assets minus current liabilities, the funds needed for short-term operations.
Working capital = Current assets − Current liabilities
The less working capital a business needs (or the more negative it is, because it collects from customers first), the more cash-efficient it is (for example, companies that get paid upfront).
In plain terms
To run a store you have to keep inventory on hand, money sold on credit (accounts receivable) is tied up, and in return you owe suppliers as well. Working capital is the money tied up in, or needed for, running the business day to day.
Put simply, it's "the money a company has to lay out to keep things running."
What it tells you
It shows how much cash a company has tied up just to keep the business running.
When working capital jumps (inventory and receivables rise), that much cash gets tied up and operating cash flow (OCF) shrinks. So it often explains why "profits look fine but cash is tight."
Formula
Working capital = Current assets − Current liabilities (mainly inventory and receivables − amounts owed to suppliers)
What high or low means
The less working capital a business needs (or the more negative it is, because it collects from customers first), the more cash-efficient it is (for example, companies that get paid upfront).
Fast-growing companies tend to see working capital grow too, which ties up cash.
Rising working capital isn't necessarily bad. As a business grows, inventory and receivables naturally grow with it. But if it grows much faster than revenue, it can be a sign that too much cash is tied up.
On the other hand, it can also rise because inventory isn't selling and piles up, or receivables aren't being collected on time. What it means depends on what caused the increase.
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see SEC-filing-based financial metrics alongside the sector benchmark.
This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.