gen-define-working-capital-and-give-one-short-worked-example-90ca

Define working capital and give one short worked example.

# Working Capital **Definition:** Working capital is the difference between a company's current assets and current liabilities. It measures a company's short-term financial health and operational efficiency. **Formula:** ``` Working Capital = Current Assets - Current Liabilities ``` --- ## Short Worked Example **ABC Company has the following on its balance sheet:** **Current Assets:** - Cash: $50,000 - Accounts Receivable: $30,000 - Inventory: $20,000 - **Total Current Assets: $100,000** **Current Liabilities:** - Accounts Payable: $35,000 - Short-term Debt: $15,000 - **Total Current Liabilities: $50,000** **Working Capital Calculation:** ``` Working Capital = $100,000 - $50,000 = $50,000 ``` **Interpretation:** ABC Company has $50,000 in working capital, meaning it has sufficient liquid assets to cover its short-term obligations with $50,000 to spare for daily operations. This positive working capital indicates good short-term financial health.