Working capital refers to the difference between a company’s current assets and current liabilities. It is a measure of a company’s short-term financial health and its efficiency in managing its operations. Positive working capital indicates that a company can cover its short-term obligations, while negative working capital can signal financial trouble.

Characteristics:
– Current Assets: These include cash, accounts receivable, inventory, and other assets expected to be converted into cash within one year.
– Current Liabilities: These consist of accounts payable, short-term debt, and other obligations due within one year.
– Liquidity Indicator: Working capital is a key indicator of a company’s liquidity and operational efficiency.
– Operational Flexibility: Adequate working capital allows a company to invest in growth opportunities and manage unforeseen expenses.

Examples:
– A retail store with $200,000 in current assets (cash, inventory, and receivables) and $150,000 in current liabilities would have a working capital of $50,000, indicating a healthy financial position.
– A manufacturing company with $300,000 in current assets but $400,000 in current liabilities would have negative working capital of -$100,000, which may raise concerns about its ability to meet short-term obligations.