Working Capital: Definition, Meaning & Guide for Indian Businesses

Working capital = current assets - current liabilities. Positive working capital = liquid enough to pay short-term debts. Negative = cash crunch risk.

What is Working Capital?

Working capital is the cash available to fund day-to-day operations. Formula: current assets (cash + receivables + inventory) - current liabilities (payables + short-term debt). Healthy ratio: 1.5-2x (₹1.5-2 of current assets per ₹1 of current liabilities). Below 1 = at risk of default. Working capital cycle = days inventory + days receivables - days payables. Indian SMBs typically have 60-90 day cycles. Reduce by: faster collections (UPI mandates, e-invoice), slower vendor payments (Section 43B(h) caveat for MSMEs), JIT inventory.