The total of a company’s cash and liquid investments available to cover its day-to-day operations is often referred to as working capital. It typically represents the difference between a company’s current assets and current liabilities.
Current assets include cash, accounts receivable, and short-term investments, while current liabilities consist of obligations the business must pay within a year, such as accounts payable and short-term debt.
Positive working capital indicates that a business can meet its short-term financial obligations, whereas negative working capital may suggest liquidity issues.
Managing working capital effectively is crucial for maintaining smooth operations, ensuring timely payments, and supporting growth without the need for additional financing.