working capital

Definition 1

General: Cash available for day to day operations of a firm. Strictly speaking, one borrows cash (and not working capital) to be able to buy assets or to pay for obligations. Also called current capital.

Definition 2

Accounting: Net liquid assets computed by deducting current liabilities from current assets. Sources of working capital are (1) net income, (2) long-term loans (non-current liabilities), (3) sale of capital (non-current) assets, and (4) injection of funds by the owners (stockholders). Amount of available working capital is a measure of a firm's ability to meet its short-term obligations. Ample working capital allows management to avail of unexpected opportunities, and to qualify for bank loans and favorable trade credit terms. In the normal trade cycle of a firm, working capital equals working assets.