Why it matters
Short-term obligations need resources that can be realised in time. The headline difference between current assets and liabilities is useful, but the composition and timing matter too.
A worked example
£12,000 of current assets less £8,000 of current liabilities gives £4,000 of working capital. Some of those assets may be inventory or receivables rather than cash.
Illustrative example · simplified assumptionsA common mistake
Treating working capital as identical to cash in the bank.
Where the idea needs care
Timing and asset quality matter. A positive number does not guarantee bills can be paid when due.
Apply the idea
Explain this concept using a different example from your spending, work, business or a policy debate. State what stays fixed and what could change the result.
See the supporting infographic
The written explanation above is the main lesson. This image offers another way to remember it.
Sources and further study
Examples and explanations by Alibomics. Numeric illustrations are not current market quotations.