This means you subtract what your business owes in the short term (liabilities) from what it owns or can quickly convert to cash (assets). It gives you a snapshot of your company's short-term liquidity and ability to pay off immediate debts.

For example, if your current assets (cash, inventory, receivables) total $150,000 and your current liabilities (accounts payable, short-term loans) are $100,000, then your working capital is $50,000. A positive number generally means your business is in good shape to handle day-to-day operations.

If you want a more detailed breakdown and examples, I highly recommend checking out this page: Working Capital Formula. It explains not just the formula itself but how to apply it in different scenarios. It also covers common mistakes and ways to improve your working capital position, which helped me when I was restructuring our finances.