What is Working Capital?

Working capital is a measure of a company's short-term liquidity and operational efficiency. It is the difference between a company's current assets (like cash, accounts receivable, and inventory) and its current liabilities (like accounts payable and short-term debt).

For Startups: Managing working capital is crucial for a startup's survival. A positive working capital means a company can cover its short-term liabilities. A negative working capital can signal a looming cash flow crisis, especially for businesses that hold inventory. You can use our Working Capital Calculator to check yours.

For SaaS: SaaS businesses often have a negative working capital cycle because they collect cash upfront from annual subscriptions (creating deferred revenue, a liability) but have low immediate costs. This is a healthy sign and a major advantage of the SaaS model.

Calculation: Working Capital = Current Assets - Current Liabilities.

Example: A company with ₹50 Lakhs in current assets and ₹30 Lakhs in current liabilities has a working capital of ₹20 Lakhs.