How this number is made
Working capital is the short-term cushion: cash, receivables, and inventory, minus bills due within a year. A positive number is not spare cash. A lot of it can be inventory you cannot pay payroll with. The current-ratio page is the same two numbers as a ratio.
- Current means due or expected to turn into cash within a year.
- A line of credit that is not drawn is not an asset.
Formula
Working capital = current assets − current liabilities.
Worked example
With the figures already in the form, working capital is $90,000.
Questions
Can a profitable firm have negative working capital?
Yes. Some retailers collect cash before they pay suppliers. Negative is not automatically distress. It is a fact to explain.
Where is the ratio?
Current assets ÷ current liabilities is the current-ratio page.