What does working capital primarily measure?

Working capital primarily measures a company's efficiency in managing its short-term assets and liabilities. This concept reflects the liquidity of a business and its ability to cover its current obligations with its current resources. Efficient working capital management ensures that a company has enough cash flow to meet its short-term liabilities and invest in its day-to-day operations.

By examining components such as inventory, accounts receivable, and accounts payable, working capital provides insight into how well a company uses its resources to support its operational needs. A higher working capital indicates a more efficient management of short-term resources, suggesting that the company can quickly convert assets into cash to cover liabilities as they come due.

In contrast, while aspects of profitability, long-term solvency, and market share are important measures for a business, they do not directly relate to the day-to-day operational efficiency encapsulated by working capital.