Private Equity/Venture Services

In technical terms, working capital is the excess of a company's current assets over its current liabilities.  Current assets are generally cash, cash equivalents, inventories and receivables.  Current liabilities are those payable within one year.  Working capital measures a company's operating liquidity, i.e., the cash it makes available for use on a short term basis.

A company can be profitable but still have a working capital deficit, but a company like that won't survive for long without outside help.  As a result, companies generally work hard to manage their working capital.  The goal is to make sure that the company has enough cash to pay operational expenses and to satisfy debt that will soon become due.  Management can do this by managing cash, inventory levels, customer credit policies and short-term financing.  Most companies use a combination of those methods.