Working capital refers to the financial resources a company uses to cover its day-to-day operational expenses. It's calculated by subtracting current liabilities from current assets, representing the amount of liquid assets available to fund the company's ongoing operations. Adequate working capital is essential for businesses to meet short-term obligations such as payroll, inventory purchases, and utility bills. Insufficient working capital can lead to liquidity problems, missed opportunities, and even bankruptcy. Companies often use various methods to manage their working capital effectively, such as optimizing inventory levels, improving accounts receivable and payable processes, and securing short-term financing.
