Working capital is a term used in accounting to indicate the financial position of a firm or business organization. It refers to the capital that is essential for running the day-to-day operations of a business. Working capital is the difference between a companys current assets, such as cash, accounts receivable, inventory, and short-term securities, and its current liabilities, such as accounts payable, short-term debt payments, or the current portion of deferred revenue.

Working capital is used to gauge the short-term health of a company by measuring its current assets to its current liabilities, reflecting its liquidity, operational efficiency, and short-term financial health. It is a qualitative concept that reveals the soundness of a companys current financial position. There are two senses in which the term "working capital" is used: gross working capital and net working capital.

• Gross working capital: It is the total value of current assets. The amount of gross working capital indicates the total funds available for financing the current assets. It is a quantitative concept that fails to reveal the correct financial position of a company.

• Net working capital: It represents the excess of current assets over current liabilities. Net working capital is a qualitative concept that reveals the soundness of a companys current financial position. It shows a firms ability to meet its current obligations as they fall due for payment.

In summary, working capital is the capital that a company invests in current or working assets for meeting day-to-day expenses. It is calculated by taking a companys current assets and deducting current liabilities, and it is used to measure a companys liquidity, operational efficiency, and short-term financial health.