What is working capital?
- By Book Keeping Pros
- Sources checked 15 Oct 2026
Definition
Working capital is the money a business has available to fund its day-to-day operations, such as buying stock, paying staff and meeting bills. It is usually measured as current assets minus current liabilities, so it shows how much of the business's short-term resources would remain once its short-term debts were paid.
A positive figure means the business holds more in cash, stock and customer debts than it owes over the coming months. A negative figure means short-term debts are larger than those resources, so the business may need to collect money sooner, hold off on spending or arrange finance to keep paying its bills on time.
Working capital is not the same as money in the bank. A healthy figure on paper can be mostly unsold stock or invoices customers have not paid yet, so it helps to look at what the total is made of, not only the total itself.
In Australia
business.gov.au defines working capital as the cash available to a business for day-to-day expenses. On its balance sheet page, it lists working capital and business liquidity, meaning how quickly you could pay your current debts, as things a balance sheet helps you work out.
Its guidance on improving cash flow notes that the more unsold stock you have, the less money you have, and that collecting payments from customers faster frees up cash.
Worked example
| Item | Amount (AUD) |
|---|---|
| Cash at bank | 9,200.00 |
| Accounts receivable | 6,800.00 |
| Inventory | 5,500.00 |
| Total current assets | 21,500.00 |
| Accounts payable | 7,400.00 |
| Credit card | 1,600.00 |
| Accrued wages | 3,000.00 |
| Total current liabilities | 12,000.00 |
| Working capital | 9,500.00 |
Illustrative example only: these rows show the method and are not sourced data.
Common mistakes
- Treating a positive working capital figure as proof that the business has cash to spend today.
- Including long-term loans or equipment in the calculation, which mixes short-term and long-term items.
- Working it out only at year end instead of watching how it moves through busy and quiet periods.
Related terms
Related service
Management and cash-flow reports
Monthly reports that show where the business stands.
Sources
- Key financial terms
business.gov.au, Australian Government. Current at 15 October 2026, released 9 July 2024. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
- Set up a balance sheet
business.gov.au, Australian Government. Current at 15 October 2026, released 18 January 2024. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
- Improve your cash flow
business.gov.au, Australian Government. Current at 16 October 2026, released 20 May 2025. Checked 16 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.