Working capital measures short-term breathing room. Current assets are cash, receivables and inventory you expect to turn into cash within a year. Current liabilities are bills, payroll, taxes and debt payments due within a year. The difference is what you have to run on.
A business can be profitable and still short on working capital, for example when customers pay on 60-day terms or when it stocks up for a busy season. Working capital financing, such as a line of credit, invoice factoring or a short-term advance, fills that gap.
Example: $180,000 in current assets and $120,000 in current liabilities leaves $60,000 of working capital, a current ratio of 1.5.
Match the financing to the gap. A seasonal gap calls for short, flexible money, while a permanent one usually calls for more equity or longer-term debt.