The Formula:
Working capital is a valuable metric that lets you know about your company’s net liquidity position i.e. the short-term liquid assets left after deducting short-term liabilities. Working capital is a part of operating capital and is useful to delegate tasks, perform daily operations, run machinery, keep inventory, etc.
Positive working capital means you have more current assets than current liabilities. Having healthy working capital is essential for any business because it is used to make routine payments, handle unexpected expenses, buy raw materials, and pay for other services like transport or warehousing.
Inversely, negative working capital means that you have more current liabilities than current assets. A business having a negative working capital has more short-term financial obligations than its capacity to pay it back.
