Working Capital

Working capital is the money tied up in running day-to-day operations — current assets minus current liabilities, representing the funds needed between buying stock and collecting payment.

Trading requires spending first. Buying goods, holding inventory, delivering and then waiting for payment all take time, and working capital covers that gap.

Cash can dry up precisely when sales grow fast. Selling more means more inventory and more receivables, tying up more money. Companies that collapse while growing usually fail here.

Managing it means shortening the gap: collect receivables quickly, avoid holding inventory long, and pay suppliers as late as terms allow.

Companies with strong bargaining power can run negative working capital. Collecting from customers before paying suppliers means operating the business on someone else's money. If working capital is growing faster than revenue in the accounts, it warrants a look — it can mean sales are not converting back into cash.