Working Capital
Money tied up in running the business — current assets minus current liabilities, the funds needed for short-term operations.
In plain terms
To run a shop you stock inventory, tie up money in credit sales (receivables), and in turn owe suppliers on credit. Working capital is the money tied up in, or needed for, the day-to-day running of the business.
Put simply, it is "the money you have to keep laid out to keep the company running."
What it tells you
It shows how much cash the company keeps tied up to run its business.
When working capital jumps suddenly (rising inventory and credit), that much cash is tied up and operating cash flow (OCF) falls. So it often explains why "profit is fine but cash is tight."
Formula
working capital = current assets − current liabilities (mainly inventory + receivables − payables)
What high or low means
The less working capital required (or the more negative, by collecting from customers first), the more cash-efficient the business (e.g. companies that take prepayment).
Fast-growing companies see working capital grow too, easily tying up cash. Read growth and the cash position together.
Rising working capital is not necessarily bad. As a business grows, inventory and credit naturally grow too. But growing much faster than sales can signal cash being tied up excessively.
It deserves more caution if it grew because inventory piled up unsold or credit was not collected on time. You have to look at why it grew.
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see Working and other financial metrics alongside the sector average.
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.