What is the formula for calculating working capital?

The formula for calculating working capital is defined as the difference between current assets and current liabilities. This metric is crucial for assessing a company's short-term liquidity and operational efficiency. When you subtract current liabilities from current assets, the result indicates the amount of funds available to meet short-term obligations. A positive working capital indicates that a company can cover its short-term debts with its short-term assets, which is a sign of financial health. Conversely, a negative working capital suggests potential liquidity issues, as it implies that current liabilities exceed current assets. This understanding is fundamental in financial analysis and liquidity management.