Recent Examples of working capital from the Web
The potential benefits of a partnership between the No. 1 and No. 3 plane-makers are clear, even if implications for tax, working capital and debt aren't known at this point.
The litany of $1,000 deposits people paid to get on the Model 3 waiting list became many millions of dollars of working capital to build cars.
Meanwhile, Waters Club raised $385,000 through a private placement for working capital.
Besides matching shippers with truck drivers, the company also provides vehicle loans, insurance and working capital to its users.
More important, though, in the absence of positive profits and with working capital so negative, virtually all of Tesla's Z-score is a function of that market cap.
Pivotal plans to use the IPO proceeds to increase its financial flexibility and for working capital, investments and other general purposes.
That is working capital which small-time exporters cannot easily replace.
The buyer agreed to make a $5 million payment to Harte Hanks, subject to working capital adjustments, and pay up to an additional $5 million if the 3Q Digital business is sold again — provided certain value thresholds are met.
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.
Financial Definition of WORKING CAPITAL
What It Is
How It Works
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.
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.
WORKING CAPITAL Defined for English Language Learners
Definition of working capital for English Language Learners
business : money that is available for use while running a business
Learn More about working capital
Nglish: Translation of working capital for Spanish speakers Britannica.com: Encyclopedia article about working capital
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