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 This amount would take care of our working capital and capital expenditure needs. Sangeeta Tanwar, Quartz India, "This homegrown brand is proving that Singh is king in India’s fast food scene," 5 Feb. 2020 Even in Kenya, where small and medium-size enterprises routinely fund themselves with working capital from fintech, onerous debt loads could become a problem. Andy Mukherjee | Bloomberg, Washington Post, "This Fintech Safari Could Be a Wild Ride," 27 Sep. 2019 National Oilwell recognizes the need to improve its management of working capital, CFO and Senior Vice President Jose Bayardo has said on earnings calls, most recently in February. Mark Maurer, WSJ, "Biggest U.S. Companies’ Working-Capital Performance Hits Six-Year High," 25 June 2019 Its Jumia Lending service currently supplies third party financial institutions with data to determine credit worthiness of its merchants and offer them working capital loans. Yomi Kazeem, Quartz Africa, "Jumia is shipping bigger losses but its plans to build an African fintech leader are on pace," 13 Nov. 2019 With quick application turnaround, digital credit has helped borrowers pay for basic necessities like food and rent and access working capital for their enterprises. Abdi Latif Dahir, Quartz Africa, "Digital lending apps are coming under scrutiny in East Africa for predatory practices," 20 Sep. 2019 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

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.

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First Known Use of working capital

1798, in the meaning defined above

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Time Traveler for working capital

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The first known use of working capital was in 1798

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Statistics for working capital

Last Updated

12 Mar 2020

Cite this Entry

“Working capital.” Dictionary, Merriam-Webster, Accessed 29 Mar. 2020.

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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

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