What are the pros and cons of working capital?

Working capital is a financial tool that helps businesses manage cash flow. What are its benefits and drawbacks?


  • Working Capital helps you keep up with your inventory
  • Working Capital can help you make sure that your customers have what they need when they want it
  • You don't have to worry if you're going to run out of inventory


  • It's hard to get enough money for working capital
  • If you're not careful, you could end up running out of cash
  • You might be able to borrow from family or friends but you'll have to pay them back

Working capital refers to the amount of funds available to a company at any given time. This differs from current assets (cash, accounts receivable, inventory) and long-term assets (property, equipment).

There are two types of working capital loan: short-term or current and long-term or fixed.

Working capital is usually defined as the difference between current assets and liabilities. In other words, it is the amount of cash needed to pay off debts, plus the value of inventory and other assets.

The formula for calculating working capital is - Current Assets - Current Liabilities = Working Capital.

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