◈ GLOSSARY · BUSINESS & ENTREPRENEURSHIP
Working Capital.
A definition, in plain English — with the books that teach it.
Reviewed by ClearValue Editorial Team · Jun 27, 2026
◈ DEFINITION
What it means
Definition
Working capital is current assets (cash, receivables, inventory) minus current liabilities (accounts payable, short-term debt). It's the cash cushion that funds day-to-day operations. Negative working capital can be fine for businesses that get paid before they pay suppliers (think McDonald's), but for most companies it's a warning sign.
◈ IN PRACTICE
Example
A business has $400,000 in current assets ($150k cash + $200k AR + $50k inventory) and $250,000 in current liabilities (AP + short-term debt). Working capital = $150,000. That's the buffer to pay bills if sales slow.