working capital


Definition of working capital

: capital actively turned over in or available for use in the course of business activity:
a : the excess of current assets over current liabilities
b : all capital of a business except that invested in capital assets

Examples of working capital in a Sentence

Recent Examples on the Web

Any new tariffs are expected to bring new complexities to operations and prompt the need for more adjustments, raising the odds that working capital will soak up more cash. Tatyana Shumsky, WSJ, "Tariffs Trigger Working Capital Woes For Some Companies," 10 June 2019 Aston has set aside 30 million pounds for working capital strains but is assuming – bravely – that demand will hold even after a British departure from the EU and that customers will bear any increased manufacturing costs. Chris Hughes | Bloomberg, Washington Post, "Aston Martin’s Vantage Needs a Bit of a Tune-Up," 28 Feb. 2019 Last year the company compounded its troubles by failing to deliver projects on time, triggering penalty payments and a big jump in working capital. Washington Post, "Distressed Debt Gurus Get a 90 Percent Scorching," 9 Aug. 2019 MiMedx will use the money for working capital and general corporate purposes and to pay expenses incurred in connection with the loan, the company’s filings said. Gretchen Morgenson, WSJ, "VA Bans Injectable Wound-Care Products From MiMedx and Other Companies for Many Uses," 14 June 2019 The company’s NatWest unit is rolling out a service for working capital loans for smaller companies, ranging between £25,000 ($31,200) to £300,000. John Detrixhe, Quartz, "Will small businesses trust the banks’ lending robots?," 25 July 2019 The company was forced to borrow $103 million in working capital from Jack Ma's Alibaba Pictures Group in January. Patrick Brzeski, The Hollywood Reporter, "China's Tightening Censorship Is Making a Bad Box Office Year Even Worse," 16 July 2019 The cost cuts have had a measurable effect on the company’s financial results, improving its margins, capital expenditures and working capital, according to the CFO. Nina Trentmann, WSJ, "Nestlé Focuses on Factories, Procurement to Hit Cost-Cutting Goal," 24 May 2019 Companies that wring money from working capital can funnel those funds toward ramping up acquisitions and initiatives that propel growth. Mark Maurer, WSJ, "Biggest U.S. Companies’ Working-Capital Performance Hits Six-Year High," 25 June 2019

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'working capital.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

See More

First Known Use of working capital

1798, in the meaning defined above

Keep scrolling for more

Learn More about working capital

Statistics for working capital

Last Updated

15 Oct 2019

Look-up Popularity

Time Traveler for working capital

The first known use of working capital was in 1798

See more words from the same year

Keep scrolling for more

More Definitions for working capital

working capital


Financial Definition of working capital

What It Is

Working capital is money available to a company for day-to-day operations.

The formula for working capital is:

Current Assets - Current Liabilities

How It Works

Here is some balance sheet information about XYZ Company:

Using the working capital formula and the information above from Figure 1, we can calculate that XYZ Company's working capital is:

$160,000 - $65,000 = $95,000

[InvestingAnswers Feature: Financial Statement Analysis For Beginners]

Why It Matters

Working capital is a common measure of a company's liquidity, efficiency, and overall health. Because it includes cash, inventory, accounts receivable, accounts payable, the portion of debt due within one year, and other short-term accounts, a company's working capital reflects the results of a host of company activities, including inventory management, debt management, revenue collection, and payments to suppliers.

Positive working capital generally indicates that a company is able to pay off its short-term liabilities almost immediately. Negative working capital generally indicates a company is unable to do so. This is why analysts are sensitive to decreases in working capital; they suggest a company is becoming overleveraged, is struggling to maintain or grow sales, is paying bills too quickly, or is collecting receivables too slowly. Increases in working capital, on the other hand, suggest the opposite. There are several ways to evaluate a company's working capital further, including calculating the inventory-turnover ratio, the receivables ratio, days payable, the current ratio, and the quick ratio.

One of the most significant uses of working capital is inventory. The longer inventory sits on the shelf or in the warehouse, the longer the company's working capital is tied up.The definition of working capital on InvestingAnswers

When not managed carefully, businesses can grow themselves out of cash by needing more working capital to fulfill expansion plans than they can generate in their current state. This usually occurs when a company has used cash to pay for everything, rather than seeking financing that would smooth out the payments and make cash available for other uses. As a result, working capital shortages cause many businesses to fail even though they may actually turn a profit. The most efficient companies invest wisely to avoid these situations.

Analysts commonly point out that the level and timing of a company's cash flows are what really determine whether a company is able to pay its liabilities when due. The working-capital formula assumes that a company really would liquidate its current assets to pay current liabilities, which is not always realistic considering some cash is always needed to meet payroll obligations and maintain operations. Further, the working-capital formula assumes that accounts receivable are readily available for collection, which may not be the case for many companies.

It is also important to understand that the timing of asset purchases, payment and collection policies, the likelihood that a company will write off some past-due receivables, and even capital-raising efforts can generate different working capital needs for similar companies. Equally important is that working capital needs vary from industry to industry, especially considering how different industries depend on expensive equipment, use different revenue accounting methods, and approach other industry-specific matters. Finding ways to smooth out cash payments in order to keep working capital stable is particularly difficult for manufacturers and other companies that require a lot of up-front costs. For these reasons, comparison of working capital is generally most meaningful among companies within the same industry, and the definition of a "high" or "low" ratio should be made within this context.

Source: Investing Answers

working capital


English Language Learners Definition of working capital

business : money that is available for use while running a business

working capital

Legal Definition of working capital

see capital

More from Merriam-Webster on working capital

Nglish: Translation of working capital for Spanish Speakers Encyclopedia article about working capital

Comments on working capital

What made you want to look up working capital? Please tell us where you read or heard it (including the quote, if possible).


friendly or mild

Get Word of the Day daily email!

Test Your Vocabulary

Where in the World? A Quiz

  • peter bruegel tower of babel painting
  • What language does pajama come from?
Spell It

Can you spell these 10 commonly misspelled words?

Dictionary Devil

Test Your Knowledge - and learn some interesting things along the way.

Love words? Need even more definitions?

Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free!