Working capital is a financial metric that measures a companys liquidity and short-term financial health. It is calculated by subtracting current liabilities from current assets. Current assets include cash, accounts receivable, and inventory, while current liabilities include accounts payable, short-term debt payments, or the current portion of deferred revenue. Working capital management is a business process that helps companies make effective use of their current assets and optimize cash flow. The primary purpose of working capital management is to enable the company to maintain sufficient cash flow to meet its short-term operating costs and short-term debt obligations. Effective working capital management can improve a companys cash flow management and earnings quality through the efficient use of its resources. It is important for businesses to maintain sufficient working capital to remain solvent and pay their bills. Companies can improve their working capital position by managing accounts payable, accounts receivable, inventory, and cash.