What is Working Capital? How is it used?

Working Capital = Current Assets – Current Liabilities

If it’s positive, it means a company can pay off its short-term liabilities with its short-term assets. It is often presented as a financial metric and its magnitude and sign (negative or positive) tell you whether or not the company is “sound.” 

Bankers look at Operating Working Capital more commonly in models, and that is defined as (Current Assets – Cash & Cash Equivalents) – (Current Liabilities – Debt).

The point of Operating Working Capital is to exclude items that relate to a company’s financing activities – cash and debt – from the calculation.