What is working capital? How does working capital relate to the operating cycle?

The expenses that the business entity has not received as services yet, but the payment has been made are prepaid expenses. These are considered current assets and services from these expenses expected to be obtained in one year or operating cycle.

The excess of current assets that will be available with the company after fulfilling the obligations relating to the current commitments or liabilities is considered working capital. It is calculated as:

$\mathrm{Working}\mathrm{capital}=\mathrm{Current}\mathrm{assets}-\mathrm{Current}\mathrm{liabilities}$

During the operating cycle of the business entity, the essential functions require a steady flow of funds for efficient working, and this constant flow of funds is fulfilled by the working capital of the business entity.