What does working capital represent in a healthcare business?

Working capital is a crucial financial metric that represents the difference between a healthcare organization's current assets and current liabilities. This definition highlights the organization's short-term financial health and efficiency in managing its operational liquidity. Current assets typically include cash, accounts receivable, and inventories that can be converted into cash within a year, while current liabilities encompass obligations that the organization must settle within the same timeframe, such as accounts payable and short-term debt.

By calculating working capital—current assets minus current liabilities—healthcare businesses can assess their ability to cover day-to-day operations and meet financial obligations. Positive working capital indicates that a healthcare organization has sufficient short-term assets to manage its liabilities effectively, which is essential for maintaining smooth operations and ensuring that the organization can continue to deliver services without financial strain.