| Definition |
Refers to a firm’s current assets used in day-to-day operations. |
Difference between current assets and current liabilities. |
| Formula |
Total current assets (e.g., cash, inventory, receivables). |
Current assets − Current liabilities. |
| Focus |
Measures gross liquidity available. |
Measures actual short-term financial health. |
| Purpose |
Shows what resources are available for operations. |
Indicates whether a firm can meet short-term obligations. |
| Includes Liabilities? |
No, it considers only current assets. |
Yes, it subtracts current liabilities from current assets. |
| Indication |
Gives an idea of liquidity and asset allocation. |
Shows net liquidity position after liabilities. |
| Value Type |
Always a positive number (since it’s just assets). |
Can be positive or negative depending on liability size. |
| Financial Reporting |
Reported as part of current assets. |
Analyzed in financial ratios and liquidity assessments. |
| Example |
Cash ₹1,00,000 + Inventory ₹50,000 = ₹1,50,000 working capital. |
Current assets ₹1,50,000 − Current liabilities ₹1,00,000 = ₹50,000 net working capital. |
| Management Use |
Used to manage asset levels for operations. |
Used to evaluate short-term solvency. |
| Stakeholder Focus |
Mainly for internal operational planning. |
Important for lenders, investors, and analysts. |
| Liquidity Indicator |
Partial indicator; shows what assets are on hand. |
True indicator of liquidity after covering liabilities. |
Working Capital vs Net Working Capital