Most business owners think of “working capital” as the cash needed to operate their business. In the financial world the words working capital means something a little different.
My name is Michael Barbarita from Next Step CFO with the Know Your Numbers Minute.
In the financial world working capital is actually a financial metric. Working capital is defined as current assets less current liabilities and is a measure of a company’s liquidity.
If current liabilities exceed current assets there is a working capital deficiency. Use of this simple metric can identify the reason why a company is making money but has poor cash flow.
Remember, the most successful business owners know their numbers.