A fairly straightforward but nonetheless important metric, Working Capital is the monetary value of the difference between a company’s current assets and current liabilities. It’s intended to show if a company can cover any short-term expenses and debts, and generally serves as a proxy for financial health and operational efficiency.
A company’s ‘current assets’ are primarily composed of but not limited to cash, property, and inventory. Meanwhile, a company’s ‘current liabilities’ include wages, rent, utilities, and taxes. Leftover cash – the Working Capital – can be used to cover expenses including inventory purchase, short-term debt, and other operating expenses.
Working Capital is an important KPI for your finance team to monitor.