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Cash flow

Working Capital

The short-term money a company has tied up in running its business, measured as current assets minus current liabilities.

Part of the Reading Financial Statements course · Lesson 32 of 33
Formula
Current Assets − Current Liabilities

What it is

Working capital is the difference between a company's current assets (such as cash, receivables, and inventory) and its current liabilities (such as payables and short-term debt). It represents the cash a business needs to fund its day-to-day operations. Positive working capital means current assets exceed near-term obligations; negative working capital means the opposite.

Why it matters

Working capital indicates whether a company can meet its short-term bills and how efficiently it manages inventory and collections. Changes in working capital flow directly into operating cash flow — a rising investment in receivables or inventory ties up cash, while stretching payables frees it. Negative working capital is not always a warning sign; some efficient retailers run it deliberately because customers pay before suppliers do.

How it's calculated

Subtract current liabilities from current assets, both taken from the balance sheet. Analysts often track the period-over-period change because that change is what affects cash flow.

How Quintarthai uses it

Working-capital metrics have their own group in the Ratios tab on each stock's company page, alongside the balance-sheet figures that drive them.

Cross-border note. Balance-sheet classifications are broadly similar under IFRS and US GAAP, but currency reporting differs — a Canadian filer may report in CAD and a US peer in USD, so convert before comparing working-capital levels across the border.

FAQ

Is negative working capital bad?
Not always — some businesses with fast cash collection and slow supplier payments run negative working capital efficiently, though for most firms it can signal liquidity strain.
How does working capital affect cash flow?
An increase in working capital uses cash and lowers operating cash flow, while a decrease releases cash and raises it, which is why changes in working capital are a key line in the cash flow statement.
Related terms
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