Working capital measures a company’s short-term financial health. As a formula, this is calculated as current assets minus current liabilities. A negative value could indicate that the company is going to run into financial troubles as it owes more than it owns. Too big a positive number can be bad too as it suggests the company is not investing wisely.
For example…
Harry’s used car business makes a killing over any holiday period, so at those times, Harry’s working capital is usually a small positive but in those other ‘quiet times’, the working capital is mostly negative, suggesting that the value of all his cars combined is worth less than the debts the business has.
