Working capital is a financial metric that represents the difference between a company’s current assets and current liabilities. In simpler terms, it measures the short-term liquidity of a business—how easily a company can cover its short-term obligations with its short-term assets. It is pretty much pulling out this ecommerce accounting data from the current assets portion of the balance sheet. For ecommerce businesses, working capital is essential for day-to-day operations, such as managing inventory, paying suppliers, and covering other operating costs.
In an ecommerce business, managing working capital effectively is crucial for maintaining cash flow. A company with positive working capital has enough assets to cover its short-term liabilities, ensuring smooth operations without the risk of running out of funds. Negative working capital, on the other hand, indicates that the business might struggle to meet its financial obligations and could face liquidity problems. Effective management of working capital ensures an ecommerce business can scale without sacrificing operational efficiency or financial stability.
Read our in-depth article about ecommerce working capital.
Ecommerce Working Capital Formula
Working Capital = Current Assets - Current Liabilities
Working capital is calculated by subtraction current liabilities from the current assets.