Define "working capital."

Working capital is a financial metric that represents the difference between a company's current assets and current liabilities. It is crucial for assessing a business's short-term liquidity and operational efficiency.

Current assets include cash, inventory, accounts receivable, and other assets that are expected to be converted into cash or used up within one year. Current liabilities comprise obligations the company is expected to settle within the same timeframe, such as accounts payable and short-term loans.

By calculating working capital, businesses can determine if they have enough short-term assets to cover their short-term liabilities. Positive working capital indicates that a company can meet its short-term financial obligations, while negative working capital might signal potential financial trouble, as it suggests the company may struggle to pay off its immediate debts.

This concept is fundamental for business management and financial planning, as it provides insights into the operational health of an organization.