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

For now, Netflix has plugged the increase in working capital by turning to the debt market, a move that has concerned some investors, analysts say. Tatyana Shumsky, WSJ, "New Netflix CFO to Tackle Cash Flow Conundrum," 2 Jan. 2019 As a result, companies are building up working capital in a sector that historically had very little of it. Ezequiel Minaya, WSJ, "CFOs Face a Tough Task: Freeing Cash Trapped on Their Balance Sheets," 29 Nov. 2018 To go fix that stuff, so what takes up a lot of the cash is the working capital cycle. Eric Johnson, Recode, "Wearables pioneer Jawbone is back with a new mission: Warning you about health problems you didn’t know you had," 26 Sep. 2018 Adtalem committed to delivering DeVry some working capital. Patrick Danner, San Antonio Express-News, "Former DeVry University students sue for fraud in San Antonio federal court," 3 July 2018 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. Julie Johnsson And Fabiola Moura,, "Boeing's $4.75 billion Embraer deal leaves long to-do list," 6 July 2018 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. Andrew Moseman, Popular Mechanics, "Tesla Needs $2,500 From You to Confirm Model 3 Order," 29 June 2018 Meanwhile, Waters Club raised $385,000 through a private placement for working capital. David Lyons,, "Fort Lauderdale businessman gets 18-month prison term for role in yacht sharing club fraud," 11 June 2018 Besides matching shippers with truck drivers, the company also provides vehicle loans, insurance and working capital to its users. Liza Lin, WSJ, "SoftBank and Google Funds to Invest in Chinese Truck-Hailing Firm Manbang," 23 Apr. 2018

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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Statistics for working capital

Last Updated

5 Mar 2019

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The first known use of working capital was in 1798

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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

Comments on working capital

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likely to have or produce good results

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