Finance · business glossary
What is Working capital?
By Shivam Bhandari · Reviewed 31 October 2026 · How we write
definition
The cash tied up in day-to-day operations — inventory and money owed to you, minus money you owe — that keeps the business running between sale and payment.
Working capital explained
Working capital is the money tied up in running the business day to day: stock on shelves and money customers owe you, minus money you owe suppliers.
formula
Working capital = Current assets − Current liabilities
example
Stock ₹8 lakh + receivables ₹6 lakh − payables ₹5 lakh = ₹9 lakh of working capital tied up.
why it matters
Growing businesses often run short of cash because more sales need more stock and credit to customers before money comes back.
common mistake
Expanding sales on long credit terms without arranging finance for the extra working capital.
Frequently asked questions
What is Working capital?
The cash tied up in day-to-day operations — inventory and money owed to you, minus money you owe — that keeps the business running between sale and payment. Working capital is the money tied up in running the business day to day: stock on shelves and money customers owe you, minus money you owe suppliers.
How do you calculate Working capital?
Working capital = Current assets − Current liabilities. Stock ₹8 lakh + receivables ₹6 lakh − payables ₹5 lakh = ₹9 lakh of working capital tied up.
Why does Working capital matter?
Growing businesses often run short of cash because more sales need more stock and credit to customers before money comes back.
What is a common mistake with Working capital?
Expanding sales on long credit terms without arranging finance for the extra working capital.
Related terms
Accounts receivable
Money customers owe you for goods or services already delivered but not yet paid for.
Accounts payable
Money you owe suppliers or vendors for goods or services you've already received but not yet paid for.
Cash flow
The actual movement of money in and out of a business, which can differ sharply from reported profit if customers pay late or inventory ties up cash.