Working Capital
Current assets minus current liabilities
What is Working Capital?
Working Capital is the difference between current assets and current liabilities, representing the amount of capital tied up in the day-to-day operations of the business. Positive working capital funds the gap between paying suppliers and collecting from customers. A business that grows its working capital requirement proportionally to revenue is consuming cash as it scales, a major drag in high-growth companies. Negative working capital (where customers pay before suppliers must be paid) is actually a source of operating cash and a competitive advantage: Amazon and Walmart have historically operated with negative working capital, funding their operations with supplier credit.
Formula
Working Capital = Current Assets − Current Liabilities
Working Capital Ratio = Current Assets / Current Liabilities (= Current Ratio)
Positive = assets exceed near-term obligations
Negative = short-term obligations exceed liquid assets
Calculator
How to Use
- 1Read current assets: Balance sheet total of current assets.
- 2Read current liabilities: Balance sheet total of current liabilities.
- 3Subtract: Working Capital = CA − CL. Positive is typical; negative is a risk signal for most businesses, a feature for retailers with fast inventory turnover.
- 4Track over time: Working capital as a % of revenue should remain relatively stable. Sharp increases absorb cash; decreases release it.
Worked Example
Example: Growing mid-cap company
Current Assets
$1.2B
Current Liabilities
$800M
Working Capital = $1.2B − $0.8B = $400M. If revenue grows 20% next year and working capital stays at the same % of revenue, the company needs an additional $80M in working capital: real cash that must be funded from operations, borrowing, or equity. This is the hidden cash cost of growth that income-statement-only investors miss.