Accounting
Working Capital
Quick definition
Current Assets minus Current Liabilities. Cash + AR + inventory minus AP + accrued.
Working capital measures short-term liquidity available for operations: Current Assets (cash, AR, inventory) minus Current Liabilities (AP, accrued expenses, short-term debt). Healthy ratio: 2.0+ (twice as much current assets as liabilities). Stressed: 1.0-1.5. Distressed: below 1.0. For startups, working capital optimization (reducing DSO, extending DPO, maximizing deferred revenue) can effectively extend runway 3-9 months without any revenue/expense changes.
Related accounting terms
Frequently asked questions
- What is Working Capital?
- Working capital measures short-term liquidity available for operations: Current Assets (cash, AR, inventory) minus Current Liabilities (AP, accrued expenses, short-term debt). Healthy ratio: 2.0+ (twice as much current assets as liabilities). Stressed: 1.0-1.5. Distressed: below 1.0. For startups, working capital optimization (reducing DSO, extending DPO, maximizing deferred revenue) can effectively extend runway 3-9 months without any revenue/expense changes.
- Why is Working Capital important for startups?
- Working Capital is a accounting concept that matters for startup founders because it directly affects fundraising readiness, financial decision-making, or operational discipline at the stage where mistakes are expensive to undo. Founders who understand it have a meaningfully easier time in diligence, board meetings, and investor conversations.
- What category does Working Capital belong to?
- Working Capital is a Accounting term in the StartupCFO finance glossary — alongside other accounting concepts that founders, CFOs, and accountants use in daily startup operations and reporting.
- Where can I learn more about Working Capital?
- Beyond this definition, see the related accounting terms below, or explore StartupCFO's insights and tools that put Working Capital in context. For specific situations, talk to a fractional CFO who can walk through your numbers.
Got a finance question that needs more than a definition?
Talk to a real CFO. 30 minutes, no contract, free.
