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What is Working Capital?

Firms need cash to pay for all their day-to-day activities. They have to pay wages, pay for raw materials, pay bills and so on. The money available to them to do this is known as the firms working capital. The main sources of working capital are the current assets as these are the short-term assets that the firm can use to generate cash. However, the firm also has current liabilities and so these have to be taken account of when working out how much working capital a firm has at its disposal.

Working capital is therefore:-

WORKING CAPITAL = Current Assets
||
stock + debtors + cash
- Current liabilities

Thus working capital is the same as net current assets, and is an important part of the top half


Source:
http://www.bized.co.uk/

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