What is working capital?
Working capital is a company's current assets minus its current liabilities. In practice finance teams focus on operating working capital, the cash tied up in trade receivables and inventory less what is owed to suppliers. Positive working capital means short-term assets cover short-term obligations; managing it well frees cash for the business.
Also callednet working capitalNWCoperating working capital
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- Formula
- Current assets − current liabilities
- Operating version
- Receivables + inventory − payables
- Levers
- DSO, inventory days, DPO
How working capital is measured and managed
Net working capital uses every current asset and liability, including cash and short-term debt. Operating working capital leaves out cash and borrowings and looks at receivables plus inventory minus payables, the part that moves with trading; it is the figure lenders and buyers of businesses usually examine. The current ratio, current assets divided by current liabilities, expresses the same balance as a ratio. Growth absorbs working capital, because receivables and stock rise before customers pay, which is why a profitable company can run short of cash. The three levers are collecting faster, holding less stock and paying suppliers on agreed terms rather than early, measured as DSO, days inventory outstanding and DPO. Treasury and planning tools such as Panax, Embat and Centime forecast its effect on cash.
Common questions
Is negative working capital bad?+
Not always. Supermarkets and subscription businesses often collect from customers before paying suppliers, so they run negative working capital by design. For most other businesses it signals pressure on short-term liquidity.
What is the difference between working capital and cash flow?+
Working capital is a balance at one date. Changes in it between two dates appear in the cash flow statement: a rise in receivables or inventory uses cash, a rise in payables provides it.
What is a working capital adjustment in a business sale?+
A price adjustment when a company is sold: the buyer and seller agree a normal level of working capital, and the price goes up or down by the difference between that target and the actual figure at completion.
Software used to manage working capital
PanaxAI cash visibility and forecasting across multi-entity groups.Profile →
EmbatReal-time treasury with automated reconciliation and forecasting.Profile →
CentimeAP, AR, forecasting and banking in one cash flow view.Profile →
Round TreasuryTreasury for startups managing cash, yield and runway.Profile →
PigmentCollaborative business planning across finance and operations.Profile →
AnaplanConnected planning across finance, sales and supply chain.Profile →Part of Accountio’s accounting technology coverage · Glossary
