Title: How Working Capital Works
Headings: How Working Capital Works
How Working Capital Works
Key Takeaways
What Is Working Capital?
Not All Companies Are the Same
Evaluating Companies
The Bottom Line

Content: Key Takeaways
Working capital is the day-to-day cash that a company needs to run business operations. It is the difference between a company's current assets and its current liabilities. A company's working capital provides an indication of its short-term financial health and how liquid it is. All industries operate differently and therefore have different working capital requirements, such as retailers versus manufacturers. Assessing a company's supply chain management, inventory turnover, and its days sales outstanding (DSO) can provide an indication of its working capital management practices. The better a company's working capital, the less likely it needs to borrow money to fund operations. What Is Working Capital? Working capital refers to the cash a business requires for day-to-day operations, or, more specifically, for financing the conversion of raw materials into finished goods, which the company sells for payment. It is the difference between a company's current assets and its current liabilities, indicating its short-term financial health and liquidity. Among the most important items of working capital are levels of inventory, accounts receivable, and accounts payable.