What is Working Capital?
Working capital is the difference between a business’s current assets (like cash and accounts receivable) and its current liabilities (like accounts payable and short-term debt). It represents the operational liquidity available to run your business day-to-day.
The Working Capital Formula
Working Capital = Current Assets - Current Liabilities
A positive working capital ratio indicates that a business can pay off its short-term liabilities with its short-term assets. A negative ratio suggests that a business may struggle to meet its immediate obligations, indicating a need for external funding.
Options to Increase Working Capital
- Accelerate Collections: Shorten invoice payment terms or offer discounts for early payments.
- Optimize Inventory: Keep inventory levels lean to avoid tying up excess cash in unsold goods.
- Revenue-Based Advances: Access fast operational capital based on your monthly revenue to bridge short-term cash flow gaps.
FSI
Funding Intelligence Analyst
Reviewed by the Funding Intelligence Team. We verify all sources, regulatory guidelines, and banking parameters to maintain the highest standard of accuracy.