Corporate FinanceFinancial Glossary
Working Capital
Definition
The difference between a company's current assets (cash, receivables, inventory) and current liabilities (payables, short-term debt). Positive working capital means the company can meet its short-term obligations. Negative working capital may indicate liquidity stress or, in some business models, efficient operations (e.g., subscription businesses).
Why It Matters
Companies with consistently negative working capital (excluding business model reasons) may struggle to pay suppliers, employees, or lenders on time. For investors, deteriorating working capital is an early warning sign of financial distress, often appearing before earnings start declining.