What Is "Working Capital" And Why Is It Important?

Working capital, (Current Assets - Current Liabilities) is a measurement of the availability of cash to meet current expenses. If the practice you are considering buying is borrowing money to meet its expenses every month, then the reason for this should be investigated. Working capital is also a measure of short-term internal liquidity that many short-term lenders are concerned with if you want to borrow money for one year or less.


If the Current Assets are more than two times what the Current Liabilities are, then this indicates "excess" cash, like found money that is not actively working for you. You could use this "excess" money identified to help pay for the financing of the practice. You might wonder, why would you want to do that? Ask me.