📖 Business terms

Working capital

The cash tied up in running the business day to day.

Formula

Working capital = Current assets − Current liabilities

Working capital is short-term assets (inventory, money customers owe you) minus short-term liabilities (money you owe suppliers).

A profitable business can still run out of cash if too much is stuck in stock or unpaid invoices.

🧮 Example

A retailer holding 90 days of inventory but paying suppliers in 30 days needs a lot of cash to grow.

🎯 Interview tip

In cash-crunch cases, look at inventory days and customer payment terms.

Used in

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EBITDA

Operating profit before interest, taxes, depreciation and amortisation.

Operating leverage

When small changes in sales cause big changes in profit.

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