Working capital is the short-term financial resource available to a business to fund day-to-day operations. In accounting, it is commonly calculated as current assets minus current liabilities. It indicates the business’s ability to meet short-term obligations such as supplier invoices, payroll, rent, utilities and other operating expenses.
Current assets may include cash, bank balances, accounts receivable and inventory expected to be used or converted into cash within the operating cycle or the applicable accounting period. Current liabilities include amounts due in the short term, such as accounts payable, accrued expenses, taxes payable and current portions of debt.
Working capital = Current assets − Current liabilities.
Example: if a restaurant has $85,000 in current assets and $60,000 in current liabilities, its working capital is $25,000. This is a snapshot of short-term financial position, not the same as cash available in the bank.
Restaurants need working capital to purchase food and beverage inventory, pay staff, meet supplier terms and cover expenses between sales receipts. A business can show positive working capital while still experiencing cash-flow pressure if much of its current assets are tied up in slow-moving inventory or overdue receivables.
Working capital is a balance-sheet measure of current assets less current liabilities. Cash flow tracks the actual movement of cash into and out of the business over time. Both are important, but they answer different questions.
Chef’s note: monitor working capital alongside cash-flow forecasts, inventory turns, supplier terms and payroll obligations. Positive working capital does not guarantee that every bill can be paid on time.
This term is one of hundreds covered in depth across OCS courses, learning paths, and 1-on-1 coaching with Chef Eric.
