What is working capital ( net working capital )?

The money you have on hand – whether profit-savings , a bank loan or other means of raising capital – is your working capital . Working capital funds your day-to-day operations , helps you pay rent and staff and covers other operating expenses .

Whether you ’ re struggling to grow your business or take advantage of bigger projects , working capital can help . Working capital supports your daily running costs , funds larger projects and can help you remain afloat during even the most trying times . In this article , Daniel Reiter , Editor-in-Chief , FreshBooks , explores everything you need to know about working capital so that you can survive tough economic times and take advantage of those big opportunities when they do arise .

You may have also heard the term net working capital . Net working capital is the difference between current assets and current liabilities on your balance sheet . It ’ s the measure of your company ’ s liquidity , ability to meet short-term obligations and fund business operations . Obviously , it ’ s ideal to have more current assets than current liabilities . This would give you a positive net working capital .

Alternatively , gross working capital can be evaluated and calculated , but for purposes here we ’ re referring to working capital as net working capital .

To fully answer the question ‘ what is working capital ?’ we need to look at how it ’ s calculated using the info found right on your balance sheet .

How to calculate working capital

The working capital formula is simple : Subtract current liabilities from current assets . Current assets are cash and assets you can convert into cash within a

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