{"id":264302,"date":"2023-07-03T15:22:34","date_gmt":"2023-07-03T03:22:34","guid":{"rendered":"https:\/\/www.reckon.com\/nz\/?page_id=264302"},"modified":"2025-01-30T18:20:31","modified_gmt":"2025-01-30T06:20:31","slug":"working-capital","status":"publish","type":"glo","link":"https:\/\/www.reckon.com\/nz\/glossary\/working-capital\/","title":{"rendered":"What is working capital?"},"content":{"rendered":"

[et_pb_section fb_built=”1″ custom_padding_last_edited=”off|desktop” _builder_version=”4.27.2″ custom_margin=”0px||0px||false|false” custom_padding=”0px||0px||false|false” custom_padding_phone=”0px||||false|false” locked=”off” global_colors_info=”{}”][et_pb_row column_structure=”1_3,2_3″ _builder_version=”4.27.2″ background_size=”initial” background_position=”top_left” background_repeat=”repeat” width=”100%” custom_margin=”0px||0px||false|false” custom_padding=”0px||0px||false|false” global_colors_info=”{}”][et_pb_column type=”1_3″ module_class=”table-contents” _builder_version=”4.23″ background_color=”#f4f4f4″ custom_padding=”25px||25px||true|false” sticky_position=”top” sticky_limit_bottom=”section” sticky_position_tablet=”top” sticky_position_phone=”none” sticky_position_last_edited=”on|desktop” pac_dcm_carousel_specific_module_num=”0″ border_radii=”on|24px|24px|24px|24px” global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text _builder_version=”4.23″ text_font=”||||||||” global_colors_info=”{}” background__hover_enabled=”on|desktop”][\/et_pb_text][\/et_pb_column][et_pb_column type=”2_3″ _builder_version=”4.16″ custom_padding=”|||” pac_dcm_carousel_specific_module_num=”0″ global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text admin_label=”Definition description” _builder_version=”4.27.4″ header_2_font_size=”32px” header_2_font_size_tablet=”30px” header_2_font_size_phone=”26px” header_2_font_size_last_edited=”on|tablet” global_colors_info=”{}”]<\/p>\n

In business ownership, working capital is the difference between your current assets and current liabilities.<\/p>\n

Your current assets include things like cash, accounts receivable<\/a> and inventory, while your current liabilities include debts and accounts payable.<\/p>\n

[\/et_pb_text][et_pb_image src=”https:\/\/www.reckon.com\/nz\/wp-content\/uploads\/2024\/05\/working-capital.png” alt=”Working Capital Definition” title_text=”Working Capital” align=”center” admin_label=”Image” _builder_version=”4.25.0″ _module_preset=”default” global_colors_info=”{}”][\/et_pb_image][et_pb_text admin_label=”Definition description + related terms” _builder_version=”4.27.4″ header_2_font_size=”32px” hover_enabled=”0″ header_2_font_size_tablet=”30px” header_2_font_size_phone=”26px” header_2_font_size_last_edited=”on|tablet” global_colors_info=”{}” sticky_enabled=”0″]<\/p>\n

Essentially, if you were to sell all your current assets and settle all your short-term debt, the resulting difference would be your working capital.<\/p>\n

Why do you need to understand working capital?<\/h2>\n

The working capital metric is used to understand the short-term liquidity<\/a> of your business. It assists you to gauge your current financial health and your ability to pay bills. The concept also relates to your cash flow and your overall profitability.<\/p>\n

Working capital formula<\/h2>\n

The formula used to calculate working capital is as follows:<\/p>\n

Working capital = current assets \u2212 current liabilities.<\/strong><\/p>\n

Positive vs negative working capital<\/h2>\n

If you use the formula to calculate your working capital, your result will be either positive or negative.<\/p>\n

Positive working capital is when the value of your assets exceeds that of your debts. Negative working capital is when the value of your debts exceeds that of your assets.<\/p>\n

While having a high positive working capital is generally a good thing, it may not always be that simple. It might indicate for example that you have too much stock on hand or a high accounts receivable ledger.<\/p>\n

Net working capital<\/h2>\n

Net<\/em> working capital is often used as an interchangeable term for working capital, yet there are important differences.<\/p>\n

Net working capital considers all assets and liabilities, including long-term obligations and assets such as bank loans, property, and plant and equipment.<\/p>\n

So, while the concepts are very similar, net working capital is a long-term measure, while working capital is a short-term measure.<\/p>\n

 <\/p>\n

See related terms<\/strong>
What is cash flow?<\/a>
What are fixed assets?<\/a>
How to calculate gross profit margin?<\/a><\/p>\n

 <\/p>\n

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In business ownership, working capital is the difference between your current assets and current liabilities. Your current assets include things like cash, accounts receivable and inventory, while your current liabilities include debts and accounts payable.Essentially, if you were to sell all your current assets and settle all your short-term debt, the resulting difference would be […]<\/p>\n","protected":false},"author":6,"featured_media":278534,"menu_order":0,"template":"","meta":{"_et_pb_use_builder":"on","_et_pb_old_content":"","_et_gb_content_width":"","inline_featured_image":false,"_lmt_disableupdate":"no","_lmt_disable":"","footnotes":""},"class_list":["post-264302","glo","type-glo","status-publish","has-post-thumbnail","hentry"],"yoast_head":"\nWhat Is Working Capital? | Accounting Terms & Definitions<\/title>\n<meta name=\"description\" content=\"Learn what working capital is so that you can gauge the cash flow and financial performance of your business.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.reckon.com\/nz\/glossary\/working-capital\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What is working capital?\" \/>\n<meta property=\"og:description\" content=\"Learn what working capital is so that you can gauge the cash flow and financial performance of your business.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.reckon.com\/nz\/glossary\/working-capital\/\" \/>\n<meta property=\"og:site_name\" content=\"Reckon NZ\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/reckonhq\/\" \/>\n<meta property=\"article:modified_time\" content=\"2025-01-30T06:20:31+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.reckon.com\/nz\/wp-content\/uploads\/2024\/05\/working-capital.png\" \/>\n\t<meta property=\"og:image:width\" content=\"840\" \/>\n\t<meta property=\"og:image:height\" content=\"260\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/png\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:site\" content=\"@ReckonHQ\" \/>\n<meta name=\"twitter:label1\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data1\" content=\"2 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/www.reckon.com\\\/nz\\\/glossary\\\/working-capital\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/www.reckon.com\\\/nz\\\/glossary\\\/working-capital\\\/\"},\"author\":{\"name\":\"Alex Neighbour\",\"@id\":\"https:\\\/\\\/www.reckon.com\\\/nz\\\/#\\\/schema\\\/person\\\/ea7ed2e05f191dfcd3729f7ef819ccdb\"},\"headline\":\"What is working capital?\",\"datePublished\":\"2023-07-03T03:22:34+00:00\",\"dateModified\":\"2025-01-30T06:20:31+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/www.reckon.com\\\/nz\\\/glossary\\\/working-capital\\\/\"},\"wordCount\":777,\"publisher\":{\"@id\":\"https:\\\/\\\/www.reckon.com\\\/nz\\\/#organization\"},\"image\":{\"@id\":\"https:\\\/\\\/www.reckon.com\\\/nz\\\/glossary\\\/working-capital\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/www.reckon.com\\\/nz\\\/wp-content\\\/uploads\\\/2024\\\/05\\\/working-capital.png\",\"inLanguage\":\"en-NZ\"},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/www.reckon.com\\\/nz\\\/glossary\\\/working-capital\\\/\",\"url\":\"https:\\\/\\\/www.reckon.com\\\/nz\\\/glossary\\\/working-capital\\\/\",\"name\":\"What Is Working Capital? 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