Financial StatementsIntermediate

Working Capital

Short-term assets minus short-term liabilities: the cash tied up in daily operations.

Detailed explanation

Positive working capital means current assets cover near-term obligations. In valuation, changes in working capital reduce or add to free cash flow.

Formula

Working capital = Current assets − Current liabilities

Example

Current assets ₹300 cr − current liabilities ₹180 cr = ₹120 cr.

Why it matters

Fast-growing companies can run out of cash if working capital grows faster than profit.

Key points

  • An increase uses cash.
  • Key in DCF free cash flow.
  • Watch receivable and inventory days.

Related terms

Current RatioFree Cash Flow

More in Financial Statements

Income StatementRevenueCost of Goods SoldGross MarginEBITDAEBIT

Educational content only. Definitions and examples are illustrative and are not investment, tax or legal advice.