Working Capital
The value of assets a company has available to build its business. It is one measure of a company’s liquidity. Since average working capital tends to be different for different industries, it is probably more important to look at changes to a company’s WC over time and to compare it only to other companies in its industry.
WC = current assets – current liabilities
Some examples of current assets (like receivables or inventories) and current liabilities (like payables to the suppliers) could have been added to the definition. To make the definition more complete we can explain that the challenge of managing working capital is to reduce the CA (current assets) and increase the CL (current liabilities). Lesser the difference (CA-CL), better the working capital management. That’s why companies try to reduce the credit period (with the customers) and elongate the credit period (for the suppliers). In the some of the service industries like payment terms are “100% advance payment”, improving the CA component (of WC) excellent.