Glossary · Accounting & Audit
Working Capital
The capital required by a business to finance its day-to-day operations, equal to current assets minus current liabilities.
Working capital is the difference between current assets (cash, receivables, inventory) and current liabilities (payables, short-term debt). Positive working capital indicates short-term financial health. The net working capital cycle (debtor days + inventory days - creditor days) determines how much cash is locked in operations. Banks offer cash credit and working-capital term loans to fund this gap, often secured by stock and receivables.
Examples
A trader with ₹10 lakh inventory and ₹4 lakh creditors has working capital of ₹6 lakh, which the bank finances as a cash credit limit.