Working capital refers to a company's current assets such as cash, inventory, and accounts receivable minus its current liabilities like accounts payable. Nearly all businesses use cash from working capital to fund daily operations and growth. Properly managing working capital is vital for businesses to ensure they have enough cash flow. Key metrics used to measure liquidity and evaluate working capital management are current and acid test (quick) ratios, which compare current assets to current liabilities. Maintaining optimal working capital levels and avoiding overtrading helps companies operate efficiently and stay solvent.