Final answer:
Working capital is an organization's current assets minus its current liabilities, representing its operational liquidity. Money is a form of financial capital, not capital for production, yet it can be used to acquire capital. Businesses can grow by reinvesting profits to purchase more capital assets, which in turn can drive future growth.
Step-by-step explanation:
Working capital is defined as an organization's current or short-term assets minus its current liabilities. It is a financial metric that represents the operational liquidity available to a business, meaning it reflects the amount of money that a company has at its disposal to pay for immediate and short-term operational expenses. Capital itself can be understood in multiple ways, including physical assets like office buildings, machinery, and tools that are used for producing other goods or services, and financial capital such as money and other 'paper' assets like stocks and bonds.
While cash in your pocket is a very liquid asset ready to be used for purchases like a hamburger, the liquidity of other forms of money such as checks or savings accounts depends on the ease with which they can be converted to cash. Furthermore, money is not considered capital in the classical sense because it cannot be used directly to produce other goods, but it can be used to acquire capital and is considered a form of financial capital.
Businesses can grow through reinvesting their profits, which is the process of using the company's earnings to purchase more capital, such as upgrading equipment or facilities. The reinvestment of profits is essential for a business's growth, as it allows for the expansion of production capability and the potential to generate higher future revenues.