‘Working capital’ is a notion that many business owners are not familiar with. It seems difficult, complicated, so many prefer to just ignore it.

But it is important and it does not have to be complicated: It can be put in simple words.

I agree that the definition in Wikipedia is not easy to follow: “Working capital is a financial metric which represents operating liquidity available to a business, organization or other entity, including governmental entity. Along with fixed assets such as plant and equipment, working capital is considered a part of operating capital.” Even some finance experts need to read this definition three times to comprehend the wording…

To put it simply, working capital measures the short-term financial health of a business, ‘short-term’ being less than 12 months. Read more →