Glossary · Receivables metrics
Working capital
Working capital is current assets minus current liabilities: the short-term resources a business has to run day to day.
Working capital measures the cushion between what a business will turn into cash within a year (cash, receivables, inventory) and what it must pay within a year (suppliers, short-term debt, tax, wages owed).
Receivables are often the largest current asset of a service firm, which makes working capital deceptive. A business can show healthy working capital and still be unable to pay salaries, because the money is sitting in overdue invoices.
Collecting a receivable doesn’t change the working-capital total — it turns one current asset into another — but it changes how much of that total you can actually spend.
Formula
Working capital = current assets − current liabilities
Example
A firm has €70,000 in cash, €150,000 in receivables and €30,000 in other current assets, against €160,000 of current liabilities. Working capital is €250,000 − €160,000 = €90,000, but only €70,000 of it is spendable today.