Working capital refers to the funds a business uses to manage its day-to-day operations. It is calculated by subtracting current liabilities from current assets. Current assets include cash, inventory, and accounts receivable, while current liabilities consist of debts and obligations due within a year. Having sufficient working capital is essential for a company to meet its short-term financial obligations and invest in growth opportunities. A positive working capital indicates that a business can cover its short-term debts, while negative working capital may signal potential financial difficulties.