Working capital is the difference between a company's current assets (assets convertible to cash within one year) and current liabilities (obligations due within one year). It's a measure of a company's short-term liquidity and operational efficiency.

Working capital is essential for a business to meet its day-to-day operational expenses, cover short-term debts, and fund growth opportunities. A healthy working capital position indicates financial stability and the ability to manage unexpected financial challenges.

Positive working capital means a company's current assets exceed its current liabilities. This indicates good short-term financial health, sufficient liquidity to meet immediate obligations, and the capacity to invest in short-term growth.

Negative working capital means a company's current liabilities exceed its current assets. This can be a sign of liquidity problems, indicating that the company may struggle to meet its short-term financial obligations. While common in some industries (e.g., retail with high inventory turnover), it often warrants careful monitoring.

Companies can improve working capital by optimizing inventory levels (reducing excess stock), effectively managing accounts receivable (collecting payments faster), controlling accounts payable (negotiating better payment terms), and accurately forecasting cash flow to anticipate needs and surpluses.