Business – 5.1 Business finance – Working capital | e-Consult
5.1 Business finance – Working capital (1 questions)
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Working capital is the difference between a company’s current assets and its current liabilities. It measures the short‑term financial health and the ability to fund day‑to‑day operations.
Formula:
Working Capital = Current Assets – Current Liabilities
Example:
| Item | Amount (£) |
| Cash | 50,000 |
| Stock | 120,000 |
| Trade receivables | 80,000 |
| Total Current Assets | 250,000 |
| Trade payables | 70,000 |
| Short‑term loans | 30,000 |
| Total Current Liabilities | 100,000 |
| Working Capital | 150,000 |
The company in the example has £150,000 of working capital, indicating it can comfortably meet its short‑term obligations.