# Working Capital

Working capital is the money which is employed in a company’s day-to-day operations. It is cash or liquid assets necessary for running a company’s daily activities. It helps to find out if a business has enough current assets to cover all its short-term liabilities. It also helps in the efficient management of a company’s operations and maintenance of its financial health.

In case of a deficient working capital scenario Current Assets < Current Liabilities, which means the company has to pay more money than it will receive in the short-term. Inadequate working capital is the first sign of financial problems for a business and shows that it is struggling to keep up with its daily operations.

## How to Calculate Working Capital

The excess of current assets over current liabilities is known as the working capital, it is calculated as follows:

Working Capital = Current Assets – Current Liabilities

WC = CA – CL

Example

Calculate the working capital for a business, when current assets and current liabilities are as follows:

Current Assets = 3,00,000

Current Liabilities = 1,75,000

As, Working Capital = Current Assets – Current Liabilities

WC = 3,00,000 – 1,75,000

WC = 1,25,000

Examples of current assets include Debtors, Cash, Bank, Inventory, Prepaid Expenses, etc., and current liabilities are Creditors, Overdraft, Outstanding Expenses, etc.