Every venture needs capital to meet all the business needs, be it gathering the resources or injecting capital into day-to-day activities. The capital required by a business or venture to meet its day-to-day expenses is known as the working capital. Working capital is often also known as short-term capital decisions. Working capital revolves around two important components of a business, which are, current assets and current liability. The assets that is capable of being converted into cash within one year. Moreover, are extremely liquid, are called current assets of the business. For instance, bank balance, cash in hands, short-term investments, debtors, and prepaid expenses. Another component of the working capital is the current liability. Current liabilities are the sum of amounts due to be paid within the span of a year. For instance, bank overdrafts, outstanding expenses, etc. The net working capital is the difference between the current assets and the current liabilities of the company. What is Working Capital? The difference received after deducting the current liabilities from the current assets is known as the net working capital of the business. Working Capital is the measure of a venture's liquidity. It also denotes the operational efficiency of a venture. The better the working capital, the better is the business’ short-term financial health. Concept of Working Capital The concept of working capital is simple. It is the capital that a business uses to meet its daily expenses and is considered to be the most liquid part of the total capital. Working capital is also known as Net Working Capital (NWC). This is derived by comparing the current assets with the current liabilities on the balance sheet. The difference derived is known as the working capital of the company. • The working capital of a company reflects the difference between the venture's current assets and liabilities. It is also represented as NWC or Net Working Capital of the company. • Net Working Capital (NWC) estimates the liquidity of the company. • It also assesses the company's short-term financial health. • The company's NWC is considered to be negative if the ratio of current assets to the current liabilities falls below one. In simpler terms, the ratio should be one or more to reflect the positive working capital. • A positive Net Working Capital or NWC indicates the capability of the business to fund the future as well as the current operations. It is also an indicator of growth and expansion of business. • It is always about balance. Therefore, a very high Net Working Capital might indicate excess inventories, which are not considered healthy for a business. Reasons for additional working capital Seasonal differences in cash flow are typical reason. To fund obligations to suppliers, employees and the government while waiting for payments from customers.