Working capital is defined as the excess of current assets over current liabilities.

Of all assets, current assets are the most liquid and most easily convertible to cash. Current liabilities are obligations due within one year. Therefore, working capital measures what is available to pay a company's current debts. It also represents the cushion or margin of protection a company can give their short-term creditors.

Working capital is essential for a company to meet its continuous operational needs. The availability of working capital influences the firm's ability to meet its trade and short-term debt obligations, as well as to remain financially viable.