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Working Capital vs Cash: What's the Difference?

When it comes to business finance, the terms working capital and cash are often used interchangeably. However, there is a big difference between the two concepts. Working capital is a measure of a company's short-term financial health, while cash is just one of the assets a company can use to pay its bills. Here's a closer look at the difference between working capital and cash.

What is Working Capital?

Working capital is a measure of a company's short-term financial health. It is calculated by subtracting a company's current liabilities from its current assets. Current assets are things like cash, inventory, and accounts receivable. Current liabilities are things like accounts payable, short-term debt, and accrued expenses. If a company's current assets exceed its current liabilities, it has positive working capital. If a company's current liabilities exceed its current assets, it has negative working capital.

What is Cash?

Cash is one of the assets a company can use to pay its bills. It is important to remember that cash is not the same thing as working capital. Cash is just one of the many things that can be used to pay a company's bills. Other assets, like accounts receivable and inventory, can also be used to pay a company's bills. In fact, companies often use a combination of cash and other assets to pay their bills. The important thing to remember is that working capital is a measure of a company's short-term financial health, while cash is just one of the assets a company can use to pay its bills.

The Difference Between Working Capital and Cash

The main difference between working capital and cash is that working capital is a measure of a company's short-term financial health, while cash is just one of the assets a company can use to pay its bills. Another way to think of the difference is that working capital is a company's financial cushion, while cash is just one of the things a company can use to stay afloat financially. It is important to remember that both working capital and cash are important for a company's financial health. Companies need to have enough cash to pay their bills, and they need to have positive working capital to ensure their long-term financial health.

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