What does working capital indicate for a business?

Working capital is a crucial financial metric that measures a company's short-term financial health and operational efficiency. It is calculated by subtracting current liabilities from current assets. A positive working capital indicates that a business has enough assets to cover its short-term obligations, which is essential for maintaining day-to-day operations and ensuring liquidity.

This metric provides insight into how well a company can manage its operational costs and fund its ongoing projects. Proper management of working capital ensures that there are sufficient resources available for inventory, accounts receivable, and other operational needs, thus reflecting the company's ability to effectively use its resources.

In contrast, profitability pertains specifically to a company's earnings over a period and does not directly reflect its short-term financial position. The overall net worth of the company deals with long-term assets and liabilities, indicating the company’s total equity rather than its immediate financial health. Market share describes the portion of a market controlled by a company, providing no immediate insight into its operational efficiency or short-term liquidity. Therefore, understanding working capital is essential for evaluating and managing a business's short-term financial stability.