Working Capital

Merchant Account Glossary W Working Capital

Working capital is commonly defined as a business's current assets minus its current liabilities.

Although true to form, this definition is a little broad. The sum of current assets minus current liabilities will yield the total NET worth of a business - Rarely, if ever, is a business able to use its total NET worth as working capital.

For Example:

Assume that a business has total assets of $100K, and total liabilities of $80K.

The NET worth of this business would be $20K (100K - 80K = 20K)

Of course, it wouldn't be safe to say that the working capital for this business is also $20K - If the business were to spend $20K on a project for business growth it would have nothing left for other expenses and may very well go bankrupt.

Therefore, Working Capital is better defined as:

The portion of a businesses NET worth that is specifically used for promoting business growth.